1. Which of the following in and of itself can lead to market efficiency? Choose one...

1. Which of the following in and of itself can lead to market efficiency? Choose one or more of them.

I. market timing

II. investor rationality

III. arbitrage

IV. independent deviations from rationality

a.		I, II, III
b.		II, III
c.		I, II, III, IV
d.		II, III, IV

2. Insider trading is illegal in the U.S. and it is easy to prove.

True

False

PLEASE answer both and explain your answer. Thank you

Solutions

Expert Solution

B is the answer.

Market timing, which is also known as active investing, is a strategy which go against the norm to make profit. They sell when everyone is buying and buy when everyone is selling. So it will not lead to efficient market.

Deviation from rational behavior will also not lead to efficient market.

Yes, insider trading is illegal in US and there can be severe punishment if there is a case of insider trading. SEC regulate and the financial markets in US and they try to make to sure that everyone has same information in the market and there is no advantage anyone should have over others.

While SEC has various tools to tackle down the insider trading, it is not at all easy as it seems. There are multiple layers of the trading, which means that there are multiple parties involve between the person who has the information and the person who is executing the trade. As the number of layers increase, proving guilt is very difficult

jeff jeffy answered 1 year ago

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