Answered: Outline how you would conduct an event…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 18MC

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Question

Define Weak, Semi-Strong and Strong forms of the Efficient Market Hypothesis (EMH).

Please answer C and D!!!!!

a. How would you construct a test of the Weak form of the EMH?

b. What have researchers found when testing the Weak form of the EMH?

c. Outline how you would conduct an event study. What efficient market hypothesis are you trying to test?

d. Give an example where researchers have used an event study and what did they find? Was it consistent with the EMH?

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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