HOW GOOD IS FUNDAMENTAL ANALYSIS? THE EFFIECIENT – MARKET HYPOTHESIS

4 important questions on HOW GOOD IS FUNDAMENTAL ANALYSIS? THE EFFIECIENT – MARKET HYPOTHESIS

Five factors that help explan why security analysts have such difficulty in predicting the future:

· The influence of random events.
· The production of dubiously reported earnings through “creative” accounting procedures.
· Errors made by the analysts themselves.
· The loss of the best analysts to the sales desk or to portfolio management.
· The conflicts of interest facing securities analysts at firms with large investment banking operations.

The Production of Dubious Reported Earnings through “Creative” Accounting Procedures:

Due to fraudulent practices it’s difficult to predict future prices.

The Loss of the Best Analysts to the Sales Desk, to Portfolio Management, or to Hedge Funds:

Many security analysts work independently or are not being paid to do an analysis. Consequently, a company might lose a security analyst.
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The Conflicts of Interest between Research and Investment Banking Departments:

Due to the conflicts of interest departments may not always work in an ethical manner and make a profit.

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