Definitions for "What is Market Efficiency?"

Efficient Market Hypothesis (EHM) – It is the idea that the market accurately reflects all the information in the market at that moment in the prices that are shown. This then gives buyers and sellers no advantage because they can not gain an “upper hand” in knowing something that the majority doesn’t know when the majority already knows everything, because the prices accurately reflect the market at that moment.
Behavioral Finance – It is a branch of finance that concludes based off of investor’s mindsets. The ideas that an investor will buy low and sell high, and that prices are being manipulated by profit seekers are main themes.
January Effect – The idea that prices tend to be higher at the beginning of the year a trend that is an argument against Efficient Market Hypothesis.
How does a market become efficient? – In order for a market to become efficient a investor must believe that they can beat the market. A market must be large enough and flexible enough to allow large sets of information to released to an investor. Also, the strategies that investors use to take advantage of the inefficiencies of a market, which actually fuel the market and make it, ironically, efficient.

Car Journal Entry

My ideal automobile would be a used Volvo. Ever since I rode in Marie Taylor’s Volvo I have loved them. They are such dependable cars that do stand up against the test of time. They do have a lot of space in them even if the make is a sedan and not a wagon. More ideal would probably be a sedan model because they would be more compact and easier to park.
Reasons why:

1. Stands up against the test of time (Dependable)

2. Fairly ok gas mileage

3. It is a supposedly safe little tank in an automobile accident.

Literary Review of Greenback Blues

The article “Greenback Blues” form the New Yorker illustrates how American have been protected from the harsh realties of the financial world. This is mainly shown through the decline of the American dollar. Currently a Euro costs 1.40 in American dollars. This flux has caused little distress or change on the American side of things including their standard of living, but it has had an effect on other areas. Foreign companies have resisted raising prices in the Unites States and accepted lower profit margins. This might be because the increase of prices in the United States will cause more profit loss than the current profit with the dollar increasing. This resistance of raising prices in the United States has let the effects of the American dollar decilining impacts American very little. Think of the consequences when companies grow tired of their current profit margins. The “safety net” will be yanked away and Americans will be thrown into the reality of what is happening to their currency.

Probability – Expected Value Examples Explained

In the Swedish Parking Example that Bob Heckard from Penn State University provides from his Lectures notes a car is parked in a two hour parking zone. A police man comes strolling by and checks the “clock position” of two of the driver’s four tires, because if a car moves the “clock position” of its air valve stems change. The car would be ticketed in two hours if the valves are still in the same positions, implying that the car had not moved: however, there is a possibility that the air valve stem returned to the same place after the car was moved. The probability of the stem being in the same place is (1/12) x (1/12) = 1/144. The probabilities of each individual tires’ air valve stem is in the same place are multiplied because they are conditional. This is expected value because it is the mean over a long period of time: Once in every one hundred and forty four times a car is parked its air valve stems will be in the clock position.
Heckard also presents another example of a family planning strategy. If a family has children until they have a girl or stops after two boys will this change the male-female population? The mean probability for both girls and boy are 0.75. Therefore the sex mix or boy-girls stays equal, and the overall popualation ratio of boys and girls stays equal. This is expected value because the probability is taken over many generations, making the value a long term mean.
Heckard’s last example is a roulette wheel. A roulette wheel has thirty eight numbers: eighteen are red, eighteen are black and two are green. When a player bets if he/she is right they gain thirty five dollars, but if they are wrong the lose one dollar. The win probability is 1/38, and the lose probability is 37/38. The expected value is negative one-half, meaning over many bets the player will lose five cents per dollar bet. A roulette wheel is not far, because the negative out come means that the casino actually benefits from this game. This outcome is expected value because in the calculation the right and wrong bets of money were incorporated into the equation. [(35)(1/38)+(-1)(37/38)] = -0.05 This shows the probability over many bets, which is the expected value.