Answered: Which of the following hypothetical…

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 4P: Investment advisors estimated the stock market returns for four market segments: computers,...

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Question

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

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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