EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 11, Problem 3CP
Summary Introduction
To determine:
Which statement provides evidence which is not supported by
Introduction:
EMH which is known as efficient market hypothesis stand to be the investment theory wherein price of a share represent the entire information, however consistent alpha generation stands to be impossible. Hypothetically, the risk adjusted excess returns cannot be produced by either fundamental or technical analysis .Stock generally trade at fair value, over the stock exchange in accordance with efficient market hypothesis which makes it difficult for investors to sell stock at inflated prices or to purchase stocks at undervalued prices.
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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 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.
Chapter 11 Solutions
EBK INVESTMENTS
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Efficient Market Hypothesis - EMH Explained Simply; Author: Learn to Invest - Investors Grow;https://www.youtube.com/watch?v=UTHvfI9awBk;License: Standard Youtube License