Answered: Peter Lynch is one of the most…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 23P

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Peter Lynch is one of the most successful active investor who has generated an average return of more than 25% per year over a period of one and a half decades, which has outperformed the stock market of 12% many times over.
(a) Judge the relevance of the efficient market hypothesis in Peter Lynch’s case. Your answer should not exceed 200 words.

(b) Discuss your investment strategy assuming the efficient market hypothesis holds true. Your answer should not exceed 200 words.

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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