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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

According, to the efficient markets hypothesis,

a. changes in stock prices are impossible to predict from public information.

b. excessive diversification can reduce an investor’s expected portfolio returns.

c. the stock market moves based on the changing animal spirits of investors.

d. actively managed mutual funds should give higher returns than index funds.

To determine

Concept based on efficient market hypothesis.

Explanation

Option (a):

According to the efficient markets hypothesis, the changes in stock prices are impossible to predict from public information. The stock market exhibits informational efficiency that reflects all available information about the value of an asset. The stock prices change cannot be determined by the public information. Thus, option “a” is correct.

Option (b):

The efficient market hypothesis does not estimate the portfolio return...

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