Answered: Which of the following statements about…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 9MC

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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.

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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