Market efficiency True or false? The efficient-market hypothesis assumes that a. There are no taxes. b. There is perfect foresight. c. Successive price changes are independent. d. Investors are irrational. e. There are no transaction costs. f. Forecasts are unbiased.

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Answer 1

Textbook Question

Chapter 13, Problem 1PS

Market efficiency True or false? The efficient-market hypothesis assumes that

a. There are no taxes.
b. There is perfect foresight.
c. Successive price changes are independent.
d. Investors are irrational.
e. There are no transaction costs.
f. Forecasts are unbiased.

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.

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

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Answer 2

Textbook Question

Chapter 13, Problem 1PS

Market efficiency True or false? The efficient-market hypothesis assumes that

a. There are no taxes.
b. There is perfect foresight.
c. Successive price changes are independent.
d. Investors are irrational.
e. There are no transaction costs.
f. Forecasts are unbiased.

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.

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 13, Problem 1PS

Market efficiency True or false? The efficient-market hypothesis assumes that

a. There are no taxes.
b. There is perfect foresight.
c. Successive price changes are independent.
d. Investors are irrational.
e. There are no transaction costs.
f. Forecasts are unbiased.

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.

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

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Answer 4

Textbook Question

Chapter 13, Problem 1PS

Market efficiency True or false? The efficient-market hypothesis assumes that

a. There are no taxes.
b. There is perfect foresight.
c. Successive price changes are independent.
d. Investors are irrational.
e. There are no transaction costs.
f. Forecasts are unbiased.

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.

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

Answer 8

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Summary Introduction

To discuss: Whether the given statements are true or false.

Answer 12

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.