the three 8. What is main source of differences among levels of market efficienc
ID: 2783635 • Letter: T
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the three 8. What is main source of differences among levels of market efficiency? a. The returns that investors earn on average. b. The amount of information contained in prices. c. The extent to which insiders can profit. d. The volatility of asset prices. Which one of the following statements related to market efficiency tends to be supported by current evidence? a. It is easy for investors to earn abnormal returns. b. Short-run price movements are easy to predict. c. Mispriced stocks are easy to identify. d. Markets tend to respond quickly to new 9. information. 10. If a market is semi-strong form efficient, then... It is also strong-form efficient. It is also weak-form efficient. It is not possible to earn a positive return with public information. It is possible to earn an abnormal return with public information a. b. c. d. 11. The US Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than -form efficient. a. Wealk b. Semi-weak c. Semi-strong d. Strong 12. The expected return on a stock given various states of the economy is equal to the: a. Arithmetic average of the returns for each economic state. Summation of the individual expected rates of return. Weighted average of the returns for each economic state. Return for the economic state with the highest probability of occurrence. b. c. d.Explanation / Answer
8. The amount of information contained in the process is the difference among the three levels of market efficiency.
The weak-form EMH implies that the market is efficient, reflecting all market information. This hypothesis assumes that the rates of return on the market should be independent; past rates of return have no effect on future rates. Given this assumption, rules such as the ones traders use to buy or sell a stock, are invalid.
The semi-strong form EMH implies that the market is efficient, reflecting all publicly available information. This hypothesis assumes that stocks adjust quickly to absorb new information. The semi-strong form EMH also incorporates the weak-form hypothesis.
The strong-form EMH implies that the market is efficient: it reflects all information both public and private, building and incorporating the weak-form EMH and the semi-strong form EMH.
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