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True or false : The market is inefficient because some investors in the market suffer from behavioral biases.
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- Why would an advocate of the efficient market hypothesis believe that even if many investors exhibit the behavioral biases, security prices might still be set efficiently?An efficient market is one in which no one can profit from having a better information than the rest. Is the statement true or false or uncertainWhat is weak-form EMH? What would you expect to see/not see if markets where weak form efficient? In other words, can you think of market events that would serve as evidence that market is or isn’t weak-form efficient?
- Mark thinks that there is an interesting paradox of the efficient market hypothesis. If the market believes that prices reflect all information, investors will stop seeking mispriced securities. This may lead to more mispriced stocks and more inefficiency. However, if the market believes that inefficiency still exists, the competition of trying to be the first to find mispriced securities will make markets more efficient. Do you agree with Mark? Why or why not? Please briefly comment.What sorts of factors might limit the ability of rational investors to take advantage of any “pricing errors” that result from the actions of “behavioral investors”?Which of the following is not a characteristic of an efficient market? Investors can frequently make profits by predicting asset market prices that are different from intrinsic values. The market value of all securities at any one instant in time fully reflect all available information. Investors act rationally. The forces of demand and supply work to maintain that the security's market price and its intrinsic value are in equilibrium.
- It is said that market mispricing creates arbitrage opportunities. The other side of the coin is that the actions of arbitrageurs contribute to the removal of mispricing. How do you reconcile these seemingly contrary arguments?What is semi-strong-form EMH? What would you expect to see/not see if markets where semi-strong form efficient? In other words, can you think of market events that would serve as evidence that market is or isn’t semi-strong-form efficient?An efficient market is one in which no one ever profits from having better information than the rest. Discuss this statement and whether or not you find this to be true, false or are you uncertain. Why?
- market mispricing creates arbitrage opportunities, is this true and how. the actions of arbitrageurs contributes towards the removal of mispricing, is this true and how.Which of the following statements about the Efficient Market Hypothesis (EMH) is incorrect? Group of answer choices a)If the market is strong-form efficient, investors can not earn abnormal returns using inside information. b) If the investment in small firms earns a positive abnormal return, the stock market is not semi-strong form efficient. c) If a market is efficient, investors tend to follow a passive investment strategy. d) If the future stock price change depends on its history, the market is not weak-form efficient. e) If a market is weak-form efficient, fundamental analysis can not earn a positive abnormal return.Do you think investors can earn abnormal returns in financial markets that are at least semi strong-form efficient?