Question

If you can achieve significant abnormal returns then price changes are predictable, and the other way around (which means that if price changes are predictable, then you can achieve significant abnormal returns) (True or False)?

Answer 1

True:

Price prediction is the act of trying to determine the future value of a product or company’s share or other financial instrument traded on an exchange. The successful prediction of a future price could produce abnormal profits.

According to the efficient-market hypothesis that the stock market prices change due to all currently available market information and if someone is aware about these information he/she can predict the price.

A person can get the abnormal gain by buying the stock at low price and selling the same at high price. Higher the difference between buying and selling will result in high gain. And if someone can successfully predict the price, he can get abnormal gain by making the right decision at the right time.

So it's very much true that if price changes are predictable. Then we can achieve significant abnormal returns.