Capital Market Theories: Market Efficiency Versus Investor Prospects

Hodnett, Kathleen; Hsieh, Heng-Hsing

doi:10.19030/iber.v11i8.7163

Cited by 8 publications

(6 citation statements)

References 31 publications

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“…Considering this method, WACC provides a comparable capital cost valuation compared to the Gordon or APT model of assets pricing [54]. However, the Modern Portfolio Theory (MPT), CAPM, or APT models based on market efficiency assumption highlight investors' rational decisions [55]. The other perspective underlines the behavioral finance argumentation based on investors' heuristics decision on the financial market [56].…”

Section: Cost Of Capital-methods Reviewmentioning

confidence: 99%

Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

2021

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This paper aims to identify the costs of capital in a group of companies from the energy sector by including an investor and market risk approach. The study also concerns the company’s Weighted Average Cost of Capital (WACC) cost intra-industry analysis related to sector characteristics such as total assets, revenues, market capitalization, and companies’ age. In order to assess the intergroup relationships, basic correlation relationships were compared and a nonparametric test of variance was performed. The period under study covered the years 2015–2019. The conducted research evaluates groups of companies that dedicated their activity to a particular energy intra-industry division under numerous regulations in Europe. The study contributes to assessing the level of risk among energy listed companies in European capital markets based on capital structure valuation. The study results underline the role of the cost of equity financing, which was twice as high as the cost of debt. The highest WACC was related to the Beta indicator that also expressed the political and regulatory risk over the investigated period. Across debt cost analysis, the role of effective tax rate decreased the level of WACC. The highest level of WACC was noticed among uranium and integrated oil and gas companies. The study contributes to information asymmetry theory related to the cost of capital assumptions.

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Section: Cost Of Capital-methods Reviewmentioning

confidence: 99%

Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

2021

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“…Information must have certain qualitative characteristics to be useful and not have a negative impact on decisions. (Hodnett & Hsieh, 2012) "Capital Market Theories: Market Efficiency Versus Investor Prospects" Prospect theory and behavioral finance explain investment decisions in imperfect capital markets. This provides a different understanding than the assumption of perfect market efficiency.…”

Section: Literature Reviewmentioning

confidence: 99%

Application of positive accounting theory in capital market research & market response to accounting disclosures

Ananta,

Telaumbanua,

Siregar

et al. 2023

Braz. J. Develop.

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This research examines Positive Accounting Theory and its relationship with the capital market. This theory is based on three hypotheses that underlie managerial accounting theory. Using a qualitative descriptive approach, this research presents an overview of the application of Positive Accounting Theory and capital market research methods. Markets are explained through economic models that include decision trees, supply and demand, and game theory, with external factors such as competitors, consumer behavior, and political and monetary policy influencing the market. In the corporate context, the application of Positive Accounting Theory varies according to the characteristics and internal conditions of the company. However, the use of positive accounting can have a significant positive impact on company sustainability as revealed in the results of previous research. Positive Accounting Theory describes social phenomena as the result of individual decision making based on rational behavior to maximize utility, especially in the context of capital markets.

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“…Many of the core pillars of EMH are portfolio theory, option pricing model, the Capital Asset Pricing Model, extended factor models of asset values, and separation theorem Tobin (Sornette, 2014). Under the assumption of EMH, all market players are rational investors, who always act in their self-interest and make investment decisions optimally by trading off costs and gains, weighted by the statistically correct probability and marginal utilities (Lo, 2005); (Hodnett & Hsieh, 2012). Rational investors mean risk-averse investors, and the idea of risk-averse derives from the anticipated utility theory, which analyses the decision-making process of investors in the presence of risk (Hodnett & Hsieh, 2012).…”

Section: Efficient Market Hypothesismentioning

confidence: 99%

“…Under the assumption of EMH, all market players are rational investors, who always act in their self-interest and make investment decisions optimally by trading off costs and gains, weighted by the statistically correct probability and marginal utilities (Lo, 2005); (Hodnett & Hsieh, 2012). Rational investors mean risk-averse investors, and the idea of risk-averse derives from the anticipated utility theory, which analyses the decision-making process of investors in the presence of risk (Hodnett & Hsieh, 2012). The EMH began in the 1960s and was considered an immediate success, both in theory and empirical as a result, early empirical work provided overwhelming support to EMH (Ruppert, 2004).…”

Section: Efficient Market Hypothesismentioning

confidence: 99%

Untitled

2021

IJO-BS

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Purpose: This paper aims to review the market assets bubble and demonstrate how this asset bubble is related to the financial market, including the housing market, using a heterogeneous agent model. Design/ Method/ Approach: Our approach to this work is first, review the market asset bubbles, which includes its history, second review the diverse processes of assets bubble in the financial markets, including the housing market. Findings: Since this paper is a conceptual approach toward the market asset bubbles, the heterogeneous agent-based system under the noisy rational expectation equilibrium model has been discussed. Research limitations: The studies of market asset bubbles are abundant; however, most of the properties of the models under rational expectation equilibrium can fully capture the elements of market asset bubbles. Similarly, our paper has this inherent research limitation, too, for which much work is needed in this area of study. Practical implications: This reviewed work of ours will impact the market asset bubbles regarding the heterogeneous model used here since works related to applying this model in the asset markets are limited.

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Capital Market Theories: Market Efficiency Versus Investor Prospects

Cited by 8 publications

References 31 publications

Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

Energy Sector Risk and Cost of Capital Assessment—Companies and Investors Perspective

Application of positive accounting theory in capital market research & market response to accounting disclosures

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