1. Flip coin experience. Investors could be self-contradicting: bear risk and avoid risk at the same time. Drunk drive and buy car insurance at the same time. Investors know what they are investing. We want to maximize our gain. Bond market > stock market: safety of capital instead of gain. Investment mandate: pension funds, endowment funds, government funds: protection of capital, then return Size of bond market: US$100 trillion. Size of stock market: US$36 trillion Nobody can dominate the market. Perfect competition : price discovery is efficient. Is it true again? Difference in wealth is disregarded, However, the actual world tell us other stories. A) ?? ?Familiar term. B) Gini coefficient tables of the PRC, Hong Kong, Switzerland, the USA Nobody can dominate the market. Gini Coefficient measures the unequal distribution of income;Investors know what they are investing: Prospect Theory. Describe a human thinking about alternatives involving uncertainty
2. On option pricing between Hang Seng Index and its constituents
3. Behavioral finance research also found the time lag on information on the subsequent price change; some time faster, some time later. If true, what is the purpose of the inside information legislation Anomalies. Equity risk premium. Small cap premium. Value stock effect. Frequency of big movement. Numerous investment sages. Just a general understanding, there are many in research and literature Equity risk premium. If in the long run, stock is as safe as the bond per a lot of belief, why? The equity risk premium (the return to compensate the risk of stock investment) was 4-8% or even as high as 19% in certain period. If people know what they are investing, this should not happen. In the long run, there should not be such high premiums for equity. Small cap premium. If people know all about investing: why small cap stocks provides a much higher return per research. Even if they are different, the stocks shall drive to be equal by arbitrage;Truth: IBM story on PCs,2011
4. Why there is such an anomaly? Now, it is gone again. Frequency of big movements. Based on the bell shape curve and normal distribution, it is just impossible for the happening on;Value stock premium. Why do not-in-favor stocks provides a higher return? Impact of value: on average: 3.2%,1987