11. Circle True or False for the following. a. If markets follow the weak form o
ID: 2807227 • Letter: 1
Question
11. Circle True or False for the following.
a. If markets follow the weak form of market efficiency, skilled managers using fundamental analysis should be able to consistently outperform the S&P 500 over time.-----True or False
b. Assume markets are semi-strong efficient. About 60% of the 5000+ fund managers consistently underperform the S&P 500 net of fees and transaction costs. The 40% that outperform must have used insider information to achieve such better.-----True or False
c. In the strong-form, it’s impossible for stock managers to outperform the S&P 500 in any given year.-----True or False
d. If markets are semi strong efficient, then only the smartest and most skilled fundamental analysts would be able to find bargains and outperform the S&P 500 over time.------True or False
e. Investors holding a diversified portfolio will earn a return commensurate with the portfolio’s total risk.------True False
f. If markets follow the weak form of market efficiency, then all mutual fund managers will outperform the S&P 500. ---------True or False
g. Microsoft, Apple, Google & Facebook have delivered returns in excess of their CAPM return over time. This is a violation of EMH. ------True or False
Explanation / Answer
a. If markets follow the weak form of market efficiency, skilled managers using fundamental analysis should be able to consistently outperform the S&P 500 over time.-----True
Answer: Market follows the weak form of market efficiency to based on the hypothesis and past performance of the stock. This technical study is used to analyze or calculate the comparative coefficient with performance of S&P 500. This fundamental theory is to follow and implicate the random walk of stock price.
b. Assume markets are semi-strong efficient. About 60% of the 5000+ fund managers consistently underperform the S&P 500 net of fees and transaction costs. The 40% that outperform must have used insider information to achieve such better.-----False
Answer: The semi-strong efficient implies that no investors can earned the extra returns and profits by the insider trading to outperform as market price indicates by all public information.
c. In the strong-form, it’s impossible for stock managers to outperform the S&P 500 in any given year.----False.
Answer: In strong form of efficient market hypothesis shows all information regarding firm (public and private) including inside information which reflects the higher hypothesis hence fund managers have all information available to access which enables them to outperform the S&P 500 and on profitable trading.
d. If markets are semi strong efficient, then only the smartest and most skilled fundamental analysts would be able to find bargains and outperform the S&P 500 over time.------True
Answer: It requires an highly technical and fundamental knowledge to perform the trading analysis with public information. Investor needs new information regarding firm however in this market efficiency does not reveal the insider information. It is difficult for investor to expect the excess returns.
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