stock valuation and risk
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1. two factors that - economic growth
have a positive - low interest rates
effect on stocks
2. what are market items that impact the stock market in general
factors
3. what are tax ef- dividends are taxed as income, and capital gains have a
fects on stock lower federal tax rate than income
- lower income tax rates should increase the stock price
of high dividend paying stocks
4. firm factors af- dividend policy, earnings announcements and forward
fecting stock guidance, possible acquisition, management changes
5. what is the divi- increasing div = confidence in future earnings
dend policy's ef- decreasing div = large stock price declines
fect on stocks
6. the effects of if a company misses their required earnings announce-
earnings an- ment or gives poor guidance, this can lead to sharp de-
nouncement and creases in a company's stock price
forward guid-
ance
7. the effects signals uncertainty and leads to a stock price decrease
of management
change on stock
price
8. SEC filings firms must provide regular and timely filings:
- 10-K is yearly, 10-Q is quarterly
- 8-K announces a major event
9. what are quarter- public records that discuss financial results and answer
ly earnings calls questions
10. What is the effi- the more efficient a market is, the less likely an average
cient market hy- investor can profit on new information
pothesis?
1/3
stock valuation and risk
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this is because the new info would be incorporated into
prices before the investor could act
11. information historical, private, public
types for EMH
12. three possible weak form, semi-strong form, strong form
levels of efficien-
cy
13. weak form effi- Security prices always reflect the information in historical
ciency prices. No other information is reflected
14. what is technical looks at historical stock price trends to determine an in-
analysis and its vestment strategy - this can work in the short term
tools to do it the tools: current price compared to its n-day moving
avg price, fibonacci wave theory, historical all time price
highs/lows, buy/sell ratios vs historical ratios
15. semi-strong form all historical and public info is incorporated in prices
and its require-
ments requires: a liquid market place, info is communicated
quickly and easily to the public, prices are transparent,
large amnt of competition
*if these are all present then prices drastically change
immediately after company announcement*
16. strong form and all info is immediately in stock prices and prices immedi-
its beliefs ately react to all information
- there is no way to predict what will happen bc info flow is
random
investors believe active management has no benefit and
instead focus on passive investment strategies
17. evidence against there are generally underreactions to good earnings and
strong form hold- overreactions to bad earnings
ing
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stock valuation and risk
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greed and fear lead to extreme buying and selling which
is not market driven
18. how to estimate stock prices in the short term are based on supply and
stock prices demand
- prices should be evaluated related to a person's future
earnings growth
19. what is the price computes stocks using a multiple of trailing OR eanings
earnings method per share
20. what is the multi- used to evaluate whether the stock is cheap or expensive
ple of trailing the multiple is determined based on historical prices and
earnings that may not work in the future
- there is no correct multiple, its not a science
21. why use the PE easy to compute and understand
method uses actual stock prices based on actual earnings
22. limitations of the a low PE may signify a problem instead of a buying oppor-
PE method tunity
fast growing companies may not be accurately reflected
historical multiples may not be meaningful
not easy to compare similar companies
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