It seems that every month we read an article in The Wall Street Journal about a stock picker with a marvelous track record. Do these examples mean that financial markets are not efficient?
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. It seems that every month we read an article in The Wall Street Journal about a stock picker with a marvelous track record. Do these examples mean that financial markets are not efficient? (
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- Investment Performance. It seems that every month we read an article in The Wall Street Journal about a stock picker with a marvelous track record. Do these examples mean that financial markets are not efficient?Benjamin Graham, the father of value investing, once said, “In the short run, the market is a voting machine, but in the long run, the market is a weighing machine.” In this quote, Benjamin Graham was referring to the key difference between the “price” and the “value” of a security. In November 2006, Citigroup’s stock (NYSE: C) was trading at $49.59. Following the credit crisis of 2007–2008 and by the end of October 2009, Citigroup’s stock price had plummeted to $4.27. Several banks went under, and others saw their stock prices lose more than 60% of their value. Based on your understanding of stock prices and intrinsic values, which of the following statements is true? The intrinsic value of a stock is based only on perceived investor returns. A stock’s market price is often based on investors’ perceived risk in the company. You can estimate the value of a company’s stock using models such as the corporate valuation model and the dividend discount model.…Which of the following hypothetical phenomena would be either consistent with or a violation of the efficient market hypothesis? Explain briefly.a. Nearly half of all professionally managed mutual funds are able to outperform the S&P 500 in a typical year.b. Money managers who outperform the market (on a risk-adjusted basis) in one year are likely to outperform the market in the following year.c. Stock prices tend to be predictably more volatile in January than in other months.d. Stock prices of companies that announce increased earnings in January tend to outperform the market in February.
- Which of the following (hypothetical) observations would most contradict the proposition that the stock market is weakly efficient? Explain.a. Over 25% of mutual funds outperform the market on average.b. Insiders earn abnormal trading profits.c. Every January, the stock market earns abnormal returns.What comment can be made in reply to this paragraph ? The stock market experiences influence from many different outside influences. One of the biggest influences that can send stock price up or down in a hurry are the policies and laws that are voted on in Washington D.C. Recently, the federal government was at risk ofshutdown if the debt ceiling was not raised by the September 30th deadline (Kinahan,2021). All of the uncertainty has left many investors panicked and they have decided to sell, thus driving the prices lower. When the price goes down, many investors will buy the dip, a term used to describe purchasing a stock at a good value, which will in-turn drive the prices back up (Kinahan, 2021). There are many other influences that have sent the stock market into a volatile state over the last year but this is the most recent example.If you read in the Wall Street Journal that the “smartmoney” on Wall Street expects stock prices to fall,should you follow that lead and sell all your stocks?
- Your friend is thinking about buying shares of stock in a company. You have been tracking the closing prices of the stock shares for the past 90 trading days. Which type of graph for the data, histogram or time-series, would be best to show your friend? Why? A. A time-series graph because the pattern of stock prices over time is more relevant than the frequency of a range of closing prices. B. A time-series graph because the pattern of stock prices over time is less relevant than the frequency of a range of closing prices. C. A histogram because the pattern of stock prices over time is less relevant than the frequency of a range of closing prices. D. A histogram because the pattern of stock prices over time is more relevant than the frequency of a range of closing prices.About market efficiency, which of the following statements is right:a. In a highly efficient stock market, it is almost impossible for an investor to make profit from the stock market.b. In a highly efficient stock market, some smart investors can definitely beat the market even without the inside information. c. An investor can make profit by buying the stock of free Inc. since it just reported that the half-year profit doubled with respect to that during the same period in the last year. d. The stock prices of big companies are closer to their intrinsic values than those of small companies since more people follow those big companies, whereas few people follow those small companies.Based on Table 12.1 on page 392 answer the following questions: A. Which were the three worst years for Large-Company stocks? What economic event was happening when the stock market was doing so poorly? B. What were the best years for U.S. Treasury bills? What was happening in the economy that caused them to do so well? C. When stocks go down, how do long-term government bonds typically do? Provide at least two years of data that support your position.
- How would I calculate this using excel? or a financial calculator? the common stock of clinton kneepads behaves rather strangely (as does its owner). it is up 3% one day and down 3% the next, without fail. what is the stock price after 200 days of such activity? assume it starts out at $20 a. 1.828 b. 19.50 c. 21.50 d. 15.57 e. none of the aboveWhich of the following hypothetical phenomena would be either consistent with or a violation of the efficient market hypothesis? a. Nearly half of all professionally managed mutual funds are able to outperform the S&P 500 in a typical year. Consistent Inconsistent b. Money managers who outperform the market (on a risk-adjusted basis) in one year are likely to outperform the market in the following year. Consistent Inconsistent c. Stock prices tend to be predictably more volatile in January than in other months. Consistent Inconsistent d. Stock prices of companies that announce increased earnings in January tend to outperform the market in February. Consistent InconsistentEvery morning, Bob Smith puts his stock pick of the week up on Yahoo! Finance for the world to see. Every week, Ben Graham seets it, waits a few hours and then buys the stock and it always goes up! This would appear to violate the: a) Weighted Average Cost of Capital b) Volitality Principal c) Capital Asset Pricing Model d) Efficient Market Hypothesis
