Securities and Investment Analysis

3. Return to Fundamental and Technical Analysis

3.1 Session 5: Fundamental Analysis: The Practitioners' Views (2 hours session)

Presentations given by equity research analysts and fund managers.

3.2 Session 6: Fundamental Analysis (1 hour session + 2 hours session)

Introduction to concepts of market efficiency.

• Evidence that Stock Prices Do Not Fully Reflect Implications of Current Earnings for Future Earnings [Bernard and Thomas (1990)]
• Contrarian Investment, Extrapolation and Risk [Lakonishok, Shleifer, and Vishny (1994)], and
• Financial Statement Analysis and the Prediction of Stock Returns [Ou and Penman (1989)]

provide evidence on returns from fundamental analysis and are mandatory readings.

A potential reconciliation with the efficient market hypothesis can be found in The Cross-Section of Expected Stock Returns [Fama and French (1992)] and is mandatory reading.

3.3 Session 7: Technical Analysis (2 hours session)

• Overreaction tests.
• Introduction to Technical analysis.
• Tests of the efficient market hypothesis.
• Review of the evidence on market efficiency.

Does the Stock Market Overreact? [DeBondt and Thaler (1985)], and Simple Technical Trading Rules and the Stochastic Properties of Stock Returns [Brock, Lakonishok, and LeBaron (1992)] provide evidence on returns from technical analysis and are mandatory reading.

These studies are consistent with tests of the efficient market hypothesis which can be found in:

• Stock Markets Do Not Follow Random Walks: Evidence from a Simple Specification Test [Lo and MacKinlay (1988)],
• Mean Reversion in Stock Prices: Evidence and Implications [Poterba and Summers (1988)], and
• Do Stock Prices Move Too Much To BE Justified by Subsequent Dividends [Shiller (1981)]
• A comprehensive review of tests of the efficient market hypothesis can be found in Efficient Capital Markets: II [Fama (1991)]

4. Applied Securities Valuation

4.1 Session 8: Corporate Valuation Projects (2 hours)

Presentations given by selected groups of students.