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.

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.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 13QTD

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Which 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 Inconsistent
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.
In relation to the efficient markets hypothesis, consider the following observations: Mutual fund managers do not on average make superior returns. In any year approximately 50 percent of all pension funds outperform the market. It is possible to make superior returns by buying or selling stocks after the announcement of an abnormal rise in earnings. Managers who trade in their own stocks make superior returns. Which of the following statements is true? I does not provide evidence against semi-strongform efficiency, but II does provide evidence against semi-strong form efficiency. II does not provide evidence against semi-strongform efficiency, but I does provide evidence against semi-strong form efficiency. Both I and II provide evidence against the semi-strongform of market efficiency III provides evidence against semi-strong form efficiency and IV provides evidence against strongform efficiency. III and IV provide evidence against semi-strong form efficiency.
Which of the following methods of picking stocks is not consistent with fundamental analysis? a. Relying upon the advice of Wall Street analysts b. Choosing mutual funds that are managed by individuals with good reputations c. Doing research such as thoroughly reading and analyzing companies' annual reports d. Viewing individual stock prices as unpredictable
Which one of the following would provide evidence against the semistrong form of the efficient market theory?a. About 50% of pension funds outperform the market in any year.b. All investors have learned to exploit management signals about the future performance of the firm.c. Trend analysis is worthless in determining stock prices.d. Low P/E stocks tend to have positive abnormal returns over the long run.
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Which of the following empirical observations appear to contradict weak form market efficiency? a. The average rate of return of stocks is significantly greater than zero b. The month-to-month time series autocorrelation of stock returns is not significantly different from zero c. A strategy of buying recent high-return stocks (winners) and shorting recent low-return stocks (losers) provides significant positive alpha d. Low dividend stocks provide higher-than-average capital gains e. None of the above
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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? (
A local mutual fund says it has expertise in identifying stocks that are undervalued because they are under researched or unpopular. To prove its point, the fund produces evidence that it returns over the past four years was 3% above the return on the market index. a) What does efficient market hypothesis (EMH) say about undervalued stock? b) Does the fund’s evidence contradict the EMH?