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1. “ We are what we repeatedly do. Excellence, then, is not an act but a habit.” - Aristotle

2. Risk Measurement & Efficient Market Hypothesis Dr. Jatin Pancholi Website: http://www.jatinpancholi.com Dr. Jatin Pancholi has compiled and prepared this teaching note from various sources, as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The handling of a management situation requires personal guidance by a professional. To obtain copies, request permission to reproduce and to send feedback, please contact on website http://www.jatinpancholi.com . Those wishing to co-author next edition of this handout may also contact.

6. USA: NASDAQ

7. USA: S&P 500

8. UK: FTSE100

15. Graphical Representation of SML  M r f Risk Premium for a stock twice as risky as the market 1.0 Riskless return Market Risk Premium 2.0 Risk Premium for a stock half as risky as the market 0.5

17. Estimating the Beta Coefficient Using historical values of r j , r f , and r M , we can run the following linear regression to estimate the b : This equation is called the Characteristic Line of security j

18. Interpreting the Beta Coefficient The beta of the market portfolio is always equal to 1.0: The beta of the risk-free asset is always equal to 0: Since Since

20. Beta Coefficients for Selected Firms Common Stock Beta Alex Brown Nike Inc. (Class B) Microsoft PepsiCo. Inc. McDonald’s Corporation Boeing Co. AT&T Corp. Exxon Corp. 1.90 1.50 1.40 1.10 1.05 1.00 0.85 0.60

29. Efficient Market Hypothesis

33. Three Forms of Capital Market Efficiency Strong Form (All information affecting the asset’s value) Semi-Strong Form (All publicly available information) Weak Form (Information contained in past prices)

52. Thanks very much… © Photo Copyrights. Background photo of the Charles River, Harvard University, Boston, USA by Jatin Pancholi. see www.kalanidhee.org for other photographs. Dr. Jatin Pancholi www.jatinpancholi.com