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 he market is efficient, or maybe risk is being measured improperly D) none of the above
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 he market is efficient, or maybe risk is being measured improperly D) none of the above
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Your friend's portfolio consistently plots
above the Security Market Line. As a result,
friend claims to know how to earn
your
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
he market is efficient, or maybe risk is
being measured improperly
D) none of the above
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