A Market Analysis Approach to Portfolio Theories

A Market Analysis Approach to Portfolio Theories

Dilaysu Cinar (Beykent University, Turkey)
Copyright: © 2014 |Pages: 12
DOI: 10.4018/978-1-4666-4635-3.ch016
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Abstract

Stocks are affected by general economic conditions in different ways and differing severities. Various parameters affect different securities. Through diversification by making a mixture of the securities, which are affected by different states, transactions increase the benefit of the investor and this situation, which is called portfolio management. Portfolio management is deciding when securities are removed and when securities will be added. Traditional portfolio theory ignores the relationship between mutual funds and quantitative data. This is done by Modern Portfolio Theory, which uses the mathematical and statistical methods in the second half of the 20th century. Undoubtedly, market analysis within the scope of this theory will provide great convenience to investors. Thus, the aim of this study is to express some basic concepts to discuss the both traditional and modern portfolio theories and their importance in the technical and fundamental analyses.
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Efficient Market Hypothesis

On the effectiveness of financial markets, three main criteria propound in general. These criteria are tested empirically by academia. Aforementioned criteria are allocated efficiency, operational efficiency and informational efficiency. Allocated efficiency provides to the best distribution of resources. Operational efficiency performs to the minimum cost of resource transfer. Informational efficiency means all available information reflects in market prices. If the market is less active on the informational sense, (i) prices are easily manipulated, (ii) market shifts from a liberal structure, (iii) market requires to public intervention, (iv) pave the way for unlawful profit and most importantly, (v) it has a negative impact on capital accumulation and economic growth (Ozmen, 1997:1).

In general, a security market is defined as efficient market, if prices fully reflect all available information and these prices quickly respond to new information in the manner (Ozer, 1996:40).

Today, for such a definition to be reliable, some conditions must be availabe. It is possible to compile the following conditions according to Ozer(Ozer, 1996:40):

  • 1.

    There should be an excellent competition in the market, should not have been monopolies.

  • 2.

    The institutional and informational exchange costs or restrictions should not be on account. Therefore, all of the investors should be reaching simultaneous to current and future information which are related to investors’ expectations about future.

  • 3.

    All investors should have a homogeneous opinion and they should interpret to obtained information by analyzing in the same way. As a result, they should get the same information function.

  • 4.

    All investors should pay attention to market prices and they should use to their knowledge functions for maximize to benefits which are expected by them.

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