Your friend’s portfolio consistently plots above the Security Market Line. As a result, your friend claims to know how to earn abnormal returns. Thus, your friend tries to convince you that the market is not efficient. How should you respond? A) You should totally agree; this is direct evidence against market efficiency B) Tell your friend that this should be expected due to the Momentum effect C) Tell your friend that it is hard to measure risk (Joint Hypothesis Problem); maybe the market is efficient, or maybe risk is being measured improperly
Your friend’s portfolio consistently plots above the Security Market Line. As a result, your friend claims to know how to earn abnormal returns. Thus, your friend tries to convince you that the market is not efficient. How should you respond? A) You should totally agree; this is direct evidence against market efficiency B) Tell your friend that this should be expected due to the Momentum effect C) Tell your friend that it is hard to measure risk (Joint Hypothesis Problem); maybe the market is efficient, or maybe risk is being measured improperly
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 5MC: You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand...
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Your friend’s portfolio consistently plots above the Security Market Line. As a result,
your friend claims to know how to earn abnormal returns. Thus, your friend tries to
convince you that the market is not efficient. How should you respond?
A) You should totally agree; this is direct evidence against market efficiency
B) Tell your friend that this should be expected due to the Momentum effect
C) Tell your friend that it is hard to measure risk (Joint Hypothesis Problem); maybe
the market is efficient, or maybe risk is being measured improperly
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