In: Economics
1. The Coronavirus Pandemic is an unprecedented event that has affected our lives in an extraordinary way. We can see its effects on our economy as well. Due to the pandemic, majority of the stock prices are plummeting. Savers who are holding these stocks are observing major declines in the value of their portfolios. Can savers have better outcomes in their stock market portfolios by changing the stocks they own? What would Efficient Market Hypothesis say about this? Start with explaining clearly what Efficient Market Hypothesis is.
Efficient Market Hypothesis or Efficient Market Theory says that
the Market is very efficient and stock prices reflect all the
available information for the stocks.
It is not possible for the fund managers or portfolio managers or
investors to earn the returns over and above the market returns
unless the take very high risk then the market risk and invest in
very risky assets.
The current pandemic has caused many stock markets across the world
to decline significantly. Many investors who are invested in the
stocks have seen their investment values go down
significantly.
Yes the savers can have better outcomes by changing their
portfolios. Because every time the stock markets decline at such
velocity , history says they are followed by the major pullback
however when the markets resume the uptrend the sectors that
outperform may not be the same sector who participated in the
previous bull run. So investors are better off rotating their
investments in sectors who are likely to benefit more after the
current crisis are over.