We examine below how such segment reporting influences investors and corporate entities who prepare such segmental data. We also examine the various regulatory and accounting prescriptions that govern segment reporting by corporate entities before taking up concluding remarks. Investors are primarily concerned with the safety and return on amounts invested or to be invested in any entity. Safety and return concerns have a direct bearing on risk perceptions of the investors. Investors are essentially risk profiling a corporate entity and invest money only if calculated risk is permissible with their risk taking capabilities.
The information that goes in such risk profiling has been theoretically built into share price movements and asset pricing constructs. From the mid-1950s to the early 1980s, a random walk theory (RWT) of share prices was developed based on the past empirical evidence of randomness in share price movements. RWT basically stated that speculative price changes were independent and identically distributed, so that the past price data had no predictive power for future share price movements. RWT also stated that the distribution of price changes from transaction to transaction had finite variance.
The fundamental concept behind random walk theory is that competition in perfect markets would remove excess economic profits, except from those parties who exercised some degree of market monopoly. This meant that a trader with specialized information about future events could profit from the monopolistic access to information, but that fundamental and technical analysts who rely on past information should not expect to have speculative gains. Segment report essentially present investors an opportunity to project some such specialized information and gain from it. Efficient Markets Hypothesis (EMH) states that current prices always ‘fully reflect’ available information, so that the only reason prices change between two periods is the arrival of new information.
The EMH requires that only two necessary conditions be met. First, the market must be aware of all available information. The type of information available is determined by the strength of the EMH being tested. In a Weak Form EMH, current prices entirely reflect all that can be known from the study of historical prices and trading volumes. If the Weak Form is valid, technical
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