Finance Cases

CASE STUDY 4:

MARKET EFFICIENCY

[30 MARKS OUT OF 100 MARKS TOTAL]

Semester 2, 2014

Background:

Market efficiency refers to the notion where all available information is already incorporated into security prices and as such it is impossible to beat the market based on information alone.

See these podcasts

http://www.youtube.com/playlist?list=PLAD9007D2383D1817&feature=plcp

Objective:

To explore the performance of funds (Bill Miller’s Value Trust) in light of what you understand about the concept of market efficiency.

* What does the literature say about the main contributing factors to fund

performance?

* In efficient markets, can fund managers be expected to add value?

* How do we measure fund performance?

Task:

Prepare a report to potential investors advising whether they should invest in Bill Miller’s Value Trust.

In preparing your advisory report, you should address the following:

1. Past and current performance of Value Trust (both success and failure)

http://finance.yahoo.com/q/hp?s=LMVTX

You can also access Morningstar database at QUT library’s database catalogue.

2. The investment strategy of Bill Miller. In doing so, you may want to note any differences from or similarities with the investment approach taken by other so-called “super investors” such as Warren Buffet.

3. Your advice in light of the efficient market hypothesis.

4. Bill Miller’s comments in his Letters to Shareholders on Value Trust’s poor performance https://www.lmcm.com/default.asp?P=868060&S=868156

5. Change in Chief Investment Officer (CIO) in 2012.

Length:

Max 1000 words, excluding figures/tables/references.

Note:

Richard Thaler’s style argument is that all the empirical evidence suggests that prices move randomly, but that doesn't mean that prices don't sometimes move away from their true value because of irrationality or behavioural effects or whatever − examples of that could be speculative bubbles like the...