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Equity Security Analysis Overview

This document provides an overview and analysis of equity security analysis. It discusses key concepts like the efficient market hypothesis, approaches to fund management and security analysis, and performance of security analysts and fund managers. Specifically, it covers quantitative versus traditional fundamental analysis, formal versus informal valuation methods, and evidence that analyst forecasts improve market efficiency, though actively managed funds do not consistently achieve superior returns.

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Irwan Adimas
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38 views10 pages

Equity Security Analysis Overview

This document provides an overview and analysis of equity security analysis. It discusses key concepts like the efficient market hypothesis, approaches to fund management and security analysis, and performance of security analysts and fund managers. Specifically, it covers quantitative versus traditional fundamental analysis, formal versus informal valuation methods, and evidence that analyst forecasts improve market efficiency, though actively managed funds do not consistently achieve superior returns.

Uploaded by

Irwan Adimas
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Analysis Financial Report And

Business Assessment
EQUITY SECURITY ANALYSIS
CHAPTER 9
Presented by Group # 1

Bassem 041714253044
Bimo 041714253004
Irwan 041714253011
Equity Security Analysis
• Equity security analysis is the evaluation of a firm and its prospects
from the perspective of a current or potential investor in the firm’s
stock
• Security analysis is the foundation for the second step of investment
process, projecting future returns and assessing risk.
Equity Security Analysis and Market Efficiency
• Efficient market hypothesis: information would be reflected in
security prices fully and immediately upon its release.
• Under this condition it would be impossible to identify mispriced
securities on the basis of public information
• Efficient market hypothesis cannot represent an equilibrium in a strict
sense
Market Efficiency and the Role of Financial
Statement Analysis
• Market agents could profit from digesting financial statement
information:
• The information would be useful to the select few who receive newly
announced financial data, interpret it quickly, and trade on it within minutes
• The information would be useful for gaining understanding of the firm, so as
to place analyst in a better position to interpret other news as it arrives
• Create trading strategies designed to exploit any systematic ways in which the
publicly available data are ignored or discounted in the price-setting process
Approaches to Fund Management and
Security Analysis
• Active versus Passive Management
• Active: relies heavily on security analysis to identify mispriced securities
• Passive: serves as a price taker, avoiding the costs of security analysis and
turnover while seeking to hold a portfolio designed to match some overall
market index or sector performance
Approaches to Fund Management and
Security Analysis
• Quantitative versus Traditional Fundamental Analysis:
• Technical analysis: attempts to predict stock price movements on the basis of
market indicators
• Fundamental analysis: attempts to evaluate the current market prices relative
to projections of the firm’s future earnings and cash-flow generating
potential.
• Supplemented traditional fundamental analysis with more quantitative approaches
Approaches to Fund Management and
Security Analysis
• Formal versus Informal Valuation
• Formal method: described in ch.7
• Informal method:
• compare earnings projection with consensus forecast
• Recommend a stock because his or her earnings forecast appears relatively high in
comparison to the current price
• “Marginalist”
Performance of Security Analysts and Fund
Managers
• Performance of Security Analysts
• Analyst earnings forecasts are more accurate than those produced by time
series models that use past earnings to predict future earnings
• Stock prices tend to respond positively to upward revisions in analysts
earnings forecasts and recommendations, and negatively to downward
revisions
• Analysts play a valuable role in improving market efficiency
Performance of Security Analysts and Fund
Managers
• Performance of Fund Manager
• No consistent evidence that actively managed mutual funds generate
superior returns for investors

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