New Tests of Market Efficiency Using Fully Identifiable Equity Cash Flows

26 Pages Posted: 26 Feb 2007

See all articles by Aharon R. Ofer

Aharon R. Ofer

Northwestern University - Kellogg School of Management; Tel Aviv University - The Leon Recanati Graduate School of Business Administration

Oded Sarig

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship; University of Pennsylvania - The Wharton School

Keren Bar-Hava

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Abstract

Despite the fact that stock market efficiency has been tested in numerous studies and through several approaches, it is still not clear to what extent stock prices correctly reflect information. The inability to test whether stock prices correctly incorporate information stems from the infinite life of a corporation, which inhibits complete measurement of realized corporate cash flows. Using a unique dataset of publicly traded venture capital funds, we examine the relation between investor reaction to announcements of identifiable investments by funds and realized results of these investments. The advantage of our dataset is that these investments retain their original structure until fully realized. Our results indicate that, upon the announcement of investments, investors are able to properly forecast the eventual realizations of these investments and share prices reflect these forecasts.

Keywords: Market Efficiency

JEL Classification: G14

Suggested Citation

Ofer, Aharon R. and Sarig, Oded H. and Bar-Hava, Keren, New Tests of Market Efficiency Using Fully Identifiable Equity Cash Flows. Available at SSRN: https://ssrn.com/abstract=965242 or http://dx.doi.org/10.2139/ssrn.965242

Aharon R. Ofer (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-3562 (Phone)
847-491-5719 (Fax)

Tel Aviv University - The Leon Recanati Graduate School of Business Administration

P.O. Box 39010
Ramat Aviv Tel Aviv 69972, 69978
Israel

Oded H. Sarig

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship ( email )

P.O. Box 167
Herzliya, 46150
Israel

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Keren Bar-Hava

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Jerusalem
Israel

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