Sophistication of Financial Software for Market Efficiency and Dividend Irrelevancy

This report discusses the sophistication of financial software in achieving market efficiency and the irrelevancy of dividends in valuing a company. It explores the market efficiency methods provided by Fama (1970) and compares the findings to those of Coval, Hirshleifer and Shumway (2005) and Malkeil (1989). The report also evaluates the impact of dividends on company valuation and its implications for investors.

Financial Software

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
a. Discussing market efficiency methods provided by Fama (1970).....................................3
b. Comparing and contrasting findings to those of Coval, Hirshleifer and Shumway (2005)
and Malkeil (1989).................................................................................................................4
C) Evaluating irrelevancy of dividends in valuing the company...........................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
In the recent times, with the motive to generate high returns under uncertain environment
investors emphasizes on tracking financial transactions performed by them. It helps in
monitoring as well as tracking final accounts thereby making a proper categorization of income
as well as expenses part. Also, it helps in synchronizing such financial transaction with many
banks, financial institutions as well as credit card companies. The present report will define
sophistication of financial software with the help of which investors can beat the market and
thereby earn higher returns as compared to long term average. Also, it will emphasises on
methods of market efficiency given by Fama 1970. Furthermore, such findings will be compared
with Coval, Hirshleifer and Shumway (2005) and Malkeil (1989). At last, the report will define
about the concept related to dividends which are irrelevant in the valuation of a company.
Furthermore, its implications for all investors with relation to Modigliani and Miller will be
explained.
MAIN BODY
a. Discussing market efficiency methods provided by Fama (1970).
The term market efficiency is defined as the marketplace where large number of rational
specially those having aim of maximizing profits. They are actively competing with each other
with the aim of making future predictions related to the market values of those securities in
which they are having interest or made investment therein. EMH is associated with an idea of
random walk that is the term which is been used for characterizing price series where all the
subsequent changes in the price is represented from the previous prices. However, EMH is the
belief which states that the prices of the stock are predictable only on partial basis. e e Such
process is carried on with the help of current information of important nature which is available
to all participants at free of cost, on the basis of which decisions related to investment are made
and changes accordingly (Jarrow, 2018). In case of an efficient market, competition in between
active as well as intelligent participants pertaining to the actual prices of individual securities
reflect effects of information which is based both on events already occurred. Also, it is based on
events which the market is expecting to take place in the future. Fama has identified three levels
at which market can be efficient:

Strong form EMH
It is also known as the perfect market theory. As per such form of efficiency market it
defines that a market is considered as efficient one if all information relevant to the value of a
specific security or share either it is generally available to existing or potential investors or not
will be having quickly and accurately reflection in the market price. In case if the current market
price is lower than the value specified by privately held information, the participants having such
information will exploit such pricing anomaly by buying shares. It will become a continuing
process until excess demand for shares will drive price up to such extent as provided by private
information (AitSahlia and Yoon, 2016). At such point of time, such holders will have no
incentive to continue buying and will decide to withdraw from market resulting in price
stabilisation at such new equilibrium level which is known as the strong form of the EMH.
Semi strong form EMH
A market is considered as efficient one if all relevant information available publicly is
reflecting quickly in the market price. It is called semi strong form of the Efficient Market
Hypothesis. If strong form of efficient market is related with the theoretical aspect, then the semi
- strong form is having appealing to common sense of investors. In such type of situation, the
market will absorb quickly all the relevant new information as published by moving the price to
new equilibrium level which reflects such change in supply and demand as caused by the nature
of emergence of information. In this form of efficient market hypothesis, participants has to face
problem related to identification of most accurate as well as relevant information which is
available in the general public at large.
Weak form EMH
In such market form, it states that current security as well as share price will fully reflect
all market data as available related to such security. It can be said that information as contained
related to the security prices as well as volume data are fully incorporated in relation with the
current prices of shares. Also, a market is considered as of weak - form efficient type, then it can
be said that there is no correlation existing in between successive prices, as a result of which
excess returns cannot be consistently achieved with the help of study of the past price
movements of shares (Verheyden, De Moor and Van den Bossche, 2015). Such study is based on
the past price patterns of shares without having any relation with any background information
available therein.

b. Comparing and contrasting findings to those of Coval, Hirshleifer and Shumway (2005) and
Malkeil (1989)
As per Coval,Hirshleifer and Shumway (2005) study it is clearly find out that there is a
poor performance of the study even after controlling the momentum . Moreover, there is a
systematic ability of some individual to underperform which indicates that access to inside
information is not consider as a primary source of abnormal performance In the sample. It is also
find out that the sample is also consistent with individual investor that is being heterogeneous
groups are selected that includes both foolish and sophisticated traders. While on the other side,
as compared to Malkeil (1989) the finding of the study states that the returns are always joint test
of market efficiency and there is a particular market form of asset pricing model is involved.
Therefore, it is next to possible to distinguish if the abnormal returns are the outcomes of
inefficiencies. The study also show the correlation in period after 1940 is quite much lower than
the period history (Miller and et.al., 1989).
Moreover, it is also analysed that as per Coval, Hirshleifer and Shumway (2005) the in
that study the classification produces only an average return differential which is consistent with
the previous research. In the same time, study also reflect that the accounts in the bottom decile
place trades also lose 8.8 basis points in a day but on the other side, accounts in the top decile
basically earn up to 11 points per day in a week through the trades. As compared to Malkeil
(1989) it is also analysed that with an efficient market view of security price determination, stock
prices are quite low as compared to dividends and as a result, it will affect the actual market in
opposite way. Further the study also states that there is an economic shock which further raise
discount rates that is associated with opposite shock to stock prices (Malkiel, 2019). Such
findings also shows that if there is a price decline then it will definitely increase the divident and
future rate of return.
On the another side from the study of Coval, Hirshleifer and Shumway (2005) it is also
find out that individual investor must have a superior investment skills and they must be
systematically underperform (Coval, Hirshleifer and Shumway, 2005). Therefore, it clearly
reflect a new perspective on the issue of average individual traders which further trade in foolish
manner. As compared to Malkeil (1989) study, it is further find out that pricing irregularities
may well exist but for period of time, marketers are definitely influenced and as a result, it affect
the overall market in opposite way. Therefore, it is clearly reflected that if there is any excessive

in market, it can be easily corrected and market valuation is relies on both logical and
psychological factors that further depends on the projection of long term flow with an obvious
market option available (Malkiel, 1989).
As all the four companies are dealing in the same segment, it is hard make a comparison
because all they are performing very well in the market. The findings of the coval says that there
is “No Place like Home” in the mutual funds. In this the investors were having the complete
knowledge about the market in which they were investing. The company was showing familiar
effects on the portfolio decision on the mutual fund of their customer's whereas the findings of
hirshleifer were dependent on the morning sunshine of the city. It was believed that daily
weather will affect the changes made in the stock market of the country. Where the coval was
offering familiar behaviour to the customers, the hirshleifer was believing more on the climate
predictions. The findings of shumway says that while recording any record on the word file, the
proper HTML format should be used. All the lines and paragraphs must have all the line
alignments and formatting which will make the presentation of the report more attractive and
understandable by the person who is going to read it. The text format and the font size used in
the report should be appropriate whereas the malkeil was doing the short term momentum which
has included the under action to new information. In this the stock prices were stetted for the
short term and there was a correlation between successive stock and price changes in the stock
market.
C) Evaluating irrelevancy of dividends in valuing the company.
Modigliani and Miller reviewed that impact of company's dividend policy on current
share price is the matter of considerable significant not only relating to corporate officials but to
the investors towards planning portfolios in order to understand and appraising functioning of
capital market. In the perfect capital market situation, buyer and the seller of the securities is
very large for his transactions in regard to having an appreciable effect on ruling the price. All
the traders that have equal and costless access to the information regarding ruling price about all
the relevant attributes of the shares (Renneboog and Szilagyi, 2015). No any brokerage fees,
transaction cost, and transfer fees at the time when the securities are purchased, issued, sold and
there does not present any differentials in tax either between the distributed and an undistributed
profit or capital gains.

Dividend policy implies for a change in distribution of total returns for any of the periods
in between the capital gains and the dividends. However it has also been noted that it provides
for an unwarranted inferences with regards to growth rate and the rate of return as vcarious
assumptions are associated with it.
Rational behaviour indicates that an investor always prefer for more wealth to less and are
considered as indifferent towards whether the given increment in respect of their wealth takes a
form of the cash payments or increase in market value of their shares and holdings.
Perfect certainty reflects a complete assurance in part of each and every relating to future
investment program and future profits for each corporation. Due to this assurance, there is no
need for distinguishing stock and the bonds as a type or source of the funds at this level of stages
in the analysis. Therefore, In case there contained single type of the financial instrument
convenient for shares of the stock. Implications of the dividend policy could be seen as restated
in value terms for an enterprise as the whole instead in terms of an individual share. The benefit
of restating fundamental rule in such form brings a sharper focus on the 3 possible routes where
current dividends may impact current MV of an organization or equivalent to the price of
individual shares (Al-Najjar and Kilincarslan, 2016). Present dividends will be clearly affecting
mew ex market value of dividend. However, it seems that in uncertainty, typical founding of the
dividend policy with that of an investment policy frequently accompanies with the use of an
internal model of financing. A change in the dividend policy and investment policy implies the
change only in distribution of total return in any of the period between capital gains and a
dividend. In case if an investor behaves rationally, such change could not affect the market
valuations.
Dividend had the great policy on the current price of the share in an ideal's economy. As
per the Modigliani and Miller, it is important not only for corporate official must set the policy
but not for investors. Effect of dividend policy with perfect markets a rational behaviour. In the
perfect markets are widely used throughout economic theory with sum assumptions in the
present context. The all the traders have an effective equal and cost less access to information
about the ruling which are more important and best for the company (Baker and Weigand, 2015).
The valuation of company and its share are more effective and valuable for creating more
advantage perhaps of providing some further insights into the reason for the irrelevant of the
dividend policy. This is increase in the present dividend given for the investment policy, must be

very important and effective for the business and for its company growth. This is reduced the
terminal values of existing share values because part of the future dividend stream which would
otherwise have been occurred to the existing share must be attracted to diverted to attract the
outside capital from the which in effect the higher current dividend paid.
Dividend policy and leverage.-A study is above the line of proof will show it to be
essentially analogues to proofread for the certainty. The company and Modigliani and Miller,
which knows as from can have in effect two alternative sources for investment which are
retrained earning and stock issues. In order to complete the analysis of dividend policy in the
logical next which is presumably that is created great assumption of the prefect capital market
(Michaely and Qian, 2017). This allows more captive advantage for the business and for its
growth factors. The dividend is the best policy to make and create great advantage for company
and shareholder are more given their share on the dividend policy for growth factors.
CONCLUSION
From the above study it had been concluded that the, financial software has very
important and effective for the company and for its growth factors. This had been effective and
valuable for companies to solve their biggest calculations within the minutes. This has been
created more advantage for business. The report had been covered by the different methods of
financial market for increase efficiency of company market place. Those had the methods that
had been used by Fama to improve their market efficiency Strong form EMH, Semi strong form
EMH and Weak form EMH. Those had effectively played their role in company. That had been
created more values for customers in effective manner. This had also compared and contrast
those findings with compare by others with others aspects. That had been great and effective for
the company and for its growth factors. It had been concluded that the dividend has the great
policy which had been effective and valuable for the company and for its growth factors. This
created more values for companies and help to implement the investment policy for work. This
allows more captive advantage for the business and for its growth factors. The dividend had the
best policy to make and create great advantage for company and shareholder are more given their
share on the dividend policy for growth factors.

REFERENCES
Books and Journals
AitSahlia, F. and Yoon, J. H., 2016. Information stages in efficient markets. Journal of Banking
& Finance. 69. pp.84-94.
Al-Najjar, B. and Kilincarslan, E., 2016. The effect of ownership structure on dividend policy:
evidence from Turkey. Corporate Governance: The international journal of business in
society. 16(1). pp.135-161.
Baker, H. K. and Weigand, R., 2015. Corporate dividend policy revisited. Managerial Finance.
41(2). pp.126-144.
Coval, J. D., Hirshleifer, D. A. and Shumway, T., 2005. Can individual investors beat the
market?.
Jarrow, R. A., 2018. Market Informational Efficiency. In Continuous-Time Asset Pricing Theory
(pp. 319-330). Springer, Cham.
Malkiel, B. G., 1989. Efficient market hypothesis. In Finance (pp. 127-134). Palgrave
Macmillan, London.
Malkiel, B. G., 2019. Term structure of interest rates. In Finance (pp. 265-270). Palgrave
Macmillan, London.
Michaely, R. and Qian, M., 2017. Stock liquidity and dividend policy: dividend policy changes
following an exogenous liquidity shock. Available at SSRN 2894164.
Miller, M. and et.al., 1989. Final report of the Committee of Inquiry appointed by the Chicago
Mercantile Exchange to examine the events surrounding October 1987. The Black Monday
and the Futures of Financial Markets. pp.205-244.
Renneboog, L. and Szilagyi, P. G., 2015. How relevant is dividend policy under low shareholder
protection?. Journal of International Financial Markets, Institutions and Money.
Verheyden, T., De Moor, L. and Van den Bossche, F., 2015. Towards a new framework on
efficient markets. Research in International Business and Finance. 34. pp.294-308.
Online
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