Question 19 If the stock market were weak- and semistrong-form efficient, but no

Question

Question 19 If the stock market were weak- and semistrong-form efficient, but not strong-form efficient. which of the following statements would be correct? The required returns on all stocks are the same, and the required returns on stocks are higher than the required returns on bonds O The required returns on stocks equal the required returns on bonds. A trading strategy in which you buy stocks that have recently fallen in price is likely to provide you with a return that exceeds the retu on the overall stock market. O If you have insider information about a particular stock, you cannot expect to earn an above average return on this information becau it is already incorporated into the current stock price. O An inves tor could still carn a better return than the market return if he or she had inside information.

Explanation / Answer

Hello Mam/ Sir

OPTION E IS CORRECT : An investor could still earn a better return than the market return if he or she had insider information.

Strong-from Efficient market states that the stock's price incorporate all the information related to the the stock's company and stock, be it public or private. This means that even having some insider information can't earn you extra profits in stron form efficient markets.

But, when market is weak form and semi-strong form, but not strong form efficient, having insider information can earn you better return than market return.

I hope this solves your doubt.

Feel free to comment if you still have any query.

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