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This chapter has explored the subject of capital market history. Such history is useful because it tells us what to expect in the way of returns from risky assets. We summed up our study of market history with two key lessons:
These lessons have significant implications for the financial manager. We will be considering these implications in the chapters ahead. We also discussed the concept of market efficiency. In an efficient market, prices adjust quickly and correctly to new information. Consequently, asset prices in efficient markets are rarely too high or too low. How efficient capital markets (such as the NYSE) are is a matter of debate, but, at a minimum, they are probably much more efficient than most real asset markets. |