In 1990, the performance of the pros was abnormally poor, because 90% of all equity mutual funds underperformed a submissively handled index funds. To determine : How does the given fact tolerate on the problems of market efficiency . Introduction: Index funds: It is a type of mutual fund with a portfolio is constructed to match or track the elements of a market index such as, S&P 500. The index funds offers wide market exposure, lessen operating expenditure and reduced portfolio turnover.

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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.

Chapter 22, Problem 6CRCT

Summary Introduction

Case summary:

In 1990, the performance of the pros was abnormally poor, because 90% of all equity mutual funds underperformed a submissively handled index funds.

To determine: How does the given fact tolerate on the problems of market efficiency.

Introduction:

Index funds:

It is a type of mutual fund with a portfolio is constructed to match or track the elements of a market index such as, S&P 500. The index funds offers wide market exposure, lessen operating expenditure and reduced portfolio turnover.

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Which of the following observations would provide evidence against the strong form of efficient market theory? I) Mutual fund managers do not on average make superior returns. II) In any year approximately 50% of all pension funds outperform the market. III) Managers who trade in their own firm's stocks make superior returns I only II only I and II only III only

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.

Exhibit 18.11USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM Weights Policy Actual 50% stocks 60% stocks 50% bonds 40% bonds Returns Index Actual 8% stocks 9% stocks 5% bonds 7% bonds Refer to Exhibit 18.11. Which of the following statements is TRUE? a. Sector/security selection hurt the portfolio performance; returns were 6.8% less than if the manager invested the funds in stocks and bond indexes. b. Sector/security selection improved the port-folio performance by 6.8%; each sector return was higher than for index return. c. Sector/security selection improved the port-folio performance by 1.4%; each sector return was higher than for index value. d. Sector/security selection hurt the portfolio performance; returns were 1.4% less than if the manager invested the funds in stocks and bond indexes.

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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.

Chapter 22, Problem 6CRCT

Summary Introduction

Case summary:

In 1990, the performance of the pros was abnormally poor, because 90% of all equity mutual funds underperformed a submissively handled index funds.

To determine: How does the given fact tolerate on the problems of market efficiency.

Introduction:

Index funds:

It is a type of mutual fund with a portfolio is constructed to match or track the elements of a market index such as, S&P 500. The index funds offers wide market exposure, lessen operating expenditure and reduced portfolio turnover.

Expert Solution & Answer

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Answer 3

Question

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.

Chapter 22, Problem 6CRCT

Summary Introduction

Case summary:

In 1990, the performance of the pros was abnormally poor, because 90% of all equity mutual funds underperformed a submissively handled index funds.

To determine: How does the given fact tolerate on the problems of market efficiency.

Introduction:

Index funds:

It is a type of mutual fund with a portfolio is constructed to match or track the elements of a market index such as, S&P 500. The index funds offers wide market exposure, lessen operating expenditure and reduced portfolio turnover.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 4

Question

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.

Chapter 22, Problem 6CRCT

Summary Introduction