1. Discussion Topics Pecking Order Theory Arbitrage Pricing Theory
Efficient Market Hypothesis

2. Pecking Order Theory
The Pecking Order Theory (Pecking Order Model), relates to a company's capital structure which is proposed by Stewart Myers and Nicolas Majluf in 1984.
This theory states that managers follow a hierarchy when considering sources of financing (from internal financing to equity).
Internal funds are used first, and when they are depleted, debt is issued. When it is not sensible to issue more debt, equity is issued; therefore considering equity financing as a last resort.

3. Assumption Asymmetric Information:
Asymmetric information favors the issue of debt over equity.
when managers issue new equity, investors believe that managers think that the firm is overvalued and managers are taking advantage of this over-valuation. An issue of equity would therefore lead to a drop in share price.
The issue of debt signals the board's confidence that an investment is profitable and that the current stock price is undervalued.

4. Arbitrage Pricing Theory (APT)
The arbitrage pricing theory was developed by the economist Stephen Ross in 1976, as an alternative to the Capital Asset Pricing Model (CAPM). 
APT is a multi-factor asset pricing model based on the idea that an asset's returns can be predicted using the linear relationship between the asset's expected return and a number of macroeconomic variables that capture systematic risk.

5. Arbitrage Pricing Theory (APT) Vs CAPM
Unlike the CAPM, which assume markets are perfectly efficient, APT assumes markets sometimes misprice securities, before the market eventually corrects and securities move back to fair value.
Using APT, arbitrageurs hope to take advantage of any deviations from fair market value.

6. Assumptions Major assumptions of Arbitrage Pricing Theory (APT) are
Returns can be described by a factor model.
There are no arbitrage opportunities.
There are a large number of securities so it is possible to form  portfolios that diversify the firm-specific risk of individual stocks.
The financial markets are friction-less.

7. Efficient Market Hypothesis (EMH)
The efficient market hypothesis (EMH), alternatively known as the efficient market theory, is a hypothesis that states that share prices reflect all information.
Stocks always trade at their fair value on exchanges, making it impossible for investors to purchase undervalued stocks or sell stocks for inflated prices. The only way an investor can obtain higher returns is by purchasing riskier investments.

8. Response to New Information
A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information.
The efficient market hypothesis states that when new information comes into the market, it is immediately reflected in stock prices and thus neither technical nor fundamental analysis can generate excess returns.

9. Assumption
Validity of the efficient markets hypothesis holds: the belief that all information relevant to stock prices is freely and widely available, “universally shared” among all investors.

10. Level of Market Efficiency
Weak Form
When prices of securities reflect all available public market information but may not reflect new information that is not yet publicly available.
It additionally assumes that past information regarding price, volume, and returns is independent of future prices.
Semi-Strong Form
This form incorporates the weak form assumptions and expands on this by assuming that prices adjust quickly to any new public information that becomes available.
Rendering fundamental analysis incapable of having any predictive power about future price movements.
Strong Form
This includes all publicly available information, both historical and new, or current, as well as insider information.
Even private information known only to a company’s CEO, is assumed to be always already factored into the company’s current stock price.