Answered: Which of the following are consistent…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 9MC

See similar textbooks

Related questions

Concept explainers

Question

Which of the following are consistent with the efficient market hypothesis? Check all that apply.

Changes in stock prices can be accurately predicted by investors.

At the market price, the number of people who believe the stock is overvalued exactly equals the number of people who think the stock is undervalued.

A positive news release about a company will increase the value and stock price for that firm.

Some investors cite the existence of anomalies—observations that do not fit the model—as evidence that stock markets are not efficient. Which of the following are such anomalies? Check all that apply.

The best time to sell a stock is late on Wednesday or Friday, whereas the best time to buy a stock is late on Tuesday or Thursday.

The movement of stock prices of companies over time is the same as the changes in their earnings.

High returns to a stock in one period are associated with even higher returns in a later period.

There is a relationship between a firm's price-earnings ratio its expected return on its stock.

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.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions