Efficient Markets: Implications and Anomalies

This lecture covers the Efficient Market Hypothesis (EMH) implications, including the idea that a security's price equals the present value of its future cash flows. It discusses the reasons for market efficiency, the Grossman-Stiglitz paradox, and evidence against the strong form of EMH. The lecture also explores event studies testing the semi-strong EMH, return predictability, cross-sectional anomalies, and mutual fund performance. It delves into the growth of the mutual fund and Exchange Traded Funds (ETF) industry, performance benchmarks, and performance measurement using factor models. An example evaluating the Magellan Fund is presented to illustrate the application of factor models in analyzing actively managed fund returns.