Techniques Used by the Financial Experts

Added on - 16 Sep 2019

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Asset Management Company1|P a g e
ContentsAnswer 1......................................................................................................................................................3Answer 2......................................................................................................................................................5Answer 3......................................................................................................................................................7References...................................................................................................................................................92|P a g e
Answer 1Market efficiencyMarket efficiency means that situation in the financial market where the expected return of the market isequal to the required rate for return (Hamid, 2017). The market price of the securities is equal to theintrinsic value of the security and they should not be either overpriced or underpriced.Asset allocationAsset allocation is a techniques used by the financial experts to get highest return by investing in differentinvesting option and at the same time the risk of the portfolio should also be maintained as per the choiceof investor (Andonov, 2017). The asset allocation can also be used to hedge the risk of the portfolio and toreduce the risk to a minimum required level.Holding periodThe holding period of a security is the period by which investor hold that particular security in itsportfolio. In simple form holding period can be calculated as the number of day between the purchase andsale of the security.Market portfolioMarket portfolio is defined as a portfolio of all the securities that are presently available in the market.The market portfolio is calculated by weightage of each type of securities (Paranjape, 2013). Therefore inthis case the weight of the each type of security is calculated by dividing the market value of the securitywith the aggregate market value of all the securities that are available in the marketThe strategy used in the efficient market by the investorsIn an efficient market the price of the securities nor undervalued neither overvalued and is not expected tofluctuate in the future period also apart from unforeseeable events that can influence the price of thesecurity. Thus in this type of market the only sensible way to earn better return is to invest in the companywhich is performing better than others and giving higher returns as compared to the other companies inthe market. The prediction of the future price is worthless as the prediction of stock price is simplyprediction of the future which is not practical. Simple trading is the better option and a good strategy to3|P a g e
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