Answered: Which of the following statements is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In relation to the efficient markets hypothesis, consider the following observations: I. Mutual fund managers do not on average make superior returns. II. It is not possible to make superior returns by buying or selling stocks after the announcement of an abnormal rise in earnings. III. Managers who trade in their own stocks make superior returns. IV. In any year approximately 50 percent of all pension funds outperform the market. Which of the following statements is true? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. Both I and II provide evidence against the strong form of market efficiency a b. Il provides evidence against semi-strong form efficiency, but not against strong form efficiency. IIl provides evidence against strong form efficiency, but not against semi-strong form efficiency. d IV provides evidence against semi-strong form efficiency, but not against strong form efficiency. e Both I and II provide evidence against the semi-strong form of market efficiency

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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