Financial economics Assignment Example | Topics and Well Written Essays - 2000 words

Financial economics - Assignment Example Most investors as well as investment managers always assume that they can pick securities which can beat the market. As such, they always utilize available public information when making promising investment decisions. According to Lengwiler (2004), when investing, shareholders utilize financial information as their core decision-making tool. That is, if a market is termed as efficient, shareholders will purchase the security most probably at its present market price, though depending on accessible public market information. Consequently, investors who purchase other securities or the stock perceive that market information as an indispensible appraisal. Market efficiency commands that any market price of a security indicates the consensus projection of the market value of such security. As such, efficient market is can only be achieved if the security price is a replica of the accessible public market information. That is, information concerning the economy, financial markets, and th e specific companies involved. However, as a consequence, the market prices of such securities adjust very swiftly to fresh market information. In Finland Stock Exchange (FSE), it was affirmed that the market did not exhibits weak-form market efficiency since stakeholders are capable of utilizing the time series data concerning prior stock prices to differentiate the design of price changes when forecasting prospective stock return. To establish if variation in current stock price is not caused by changes in prior stock prices is our concern. As an effort to tests, with regards to data from Finland`s Stock Exchange, how market prices exhibit weak-form efficiency, a variance ratio test, nested if instructions, and run test was done on past and present stock price. This was done by investigating whether market value data, liquidity data, debt data, and profitability data have any effect on future stock returns. By collecting the data of various companies listed in