A finding that small firms earn higher returns than large firms would provides evidence against the weak form of the efficient market theory.

State whether the following are true or false. Explain your statement.

(1) A finding that small firms earn higher returns than large firms would provides evidence against the weak form of the efficient market theory.

(2) Proponents of the EMH typically advocate a passive investment strategy.

Solutions

Expert Solution

A. The given statement about weak form of Efficient market theory is FALSE because finding that small firms are earning higher return than the large firms will be providing evidence against strong form of Efficient market theory as all the publicly available information have already been discounted into the price and there is no scope for making any additional rate of return in strong form of market.

B. Given statement about Efficient market theory is TRUE as Efficient market hypothesis advocates for passive investment as there will be no rate of return which could be beating the market rate of return.

jeff jeffy answered 2 years ago

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