Under EMH, are returns predictable? Explain

Expert Solution

NO, under Efficient market hypothesis, returns are not predictable, because Efficient market hypothesis advocates for complete discounting of information into the current market value of the company so there is no price discrepancy because the intrinsic value of the company is equal to the fair market value of the company and hence it will be that the share price is reflecting the intrinsic value and there is no scope for making any additional rate of return and there is no scope for any prediction, because this prediction will fail miserably in Efficient market as Efficient market only advocates for passive investment because active investment are underperforming the market rate of return.

Hence, Efficient market hypothesis advocates for no predictability of the future rate of return because future rate of return can never be estimated in advance due to complete discounting of information in the share price.

jeff jeffy answered 2 years ago

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Under EMH, are returns predictable? Explain

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