Insights from efficient market hypothesis

Question

Efficient Market Hypothesis (EMH)

The following is indicative only. You should develop your own analysis and research based on available information.

(1) Conduct comprehensive valuation on Friends Life prior to the acquisition announcement.

(2) Evaluate the impact on the share price of Friends Life and Aviva following the above news announcement. Does the movement of share price reflect the insights from Efficient Market Hypothesis (EMH)?

(3) You are required to conduct in-depth background research on Friends Life to enhance the analysis of the acquisition event. Such research should demonstrate understandings of:

I. Capital Structure & Weighted Average Cost of Capital
II. Required Rate of Return for Equity through Application of CAPM
III. The Working of the Insurance Sector & the impact of regulation on the Insurance sector

(4) Be able to predict the outcome of the acquisition event. The finding should be specific to the price acquired within the defined timeframe as given in coursework brief.

(5) If you need to provide data and valuation result, you can include it in the appendix.

(6) References and appendixes will not be included in the final word count

Indicative Relevant Course Concepts (to be applied)   

Indicative Research Resources:

(a lot more electronic resources at your disposal in the library)

• Cost of Equity
• WACC
• CAPM
• Interest tax shield
• Stock & SX4?r Beta
• Efficient Market Hypothesis
• Past, public & private information
• Standard & Poor’s
• Moody
• Bloomberg (G.06) – need an account to use the terminal
• Sector Beta from NYU – Professor Damodaran https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/wacc.htm
• Bloomberg (G.06) – need an account to use the terminal
• National website of government departments or public information gateway on insurance sector regulation
• Financial Times (FT)
• Bloomberg
• Morningstar
• Yahoo Finance (UK)