Question

In: Finance

Choose any stock (your choice) from one of the US Stock exchanges and plot the monthly...

Choose any stock (your choice) from one of the US Stock exchanges and plot the monthly (beginning) prices of this stock for all of 2019, through Oct 1 of 2020. You should 22 data points. Briefly explain whether or not this stock would add credence to, or not, for the Efficient Markets Hypothesis (EMH). This is not a quantitative question, per se, but provide appropriate rationale to support your answer.

Solutions

Expert Solution

The stock chosen for the analysis is EBAY

At first we collect the financial data for the company in order to investigate into the Efficient market hypothesis for EBAY

If EHM theory hold true in case of semi strong or strong markets like US , it states that all the data in the publicly available domain and the recent news will be reflected in the share prices .

Also

The past pprice and the volume information will have no impact on the current share price of the company :

So the data obtained were as follows

EBAY

Date

Price

Volume

01-01-2019

32.78165

343616600

01-02-2019

36.19133

210230900

01-03-2019

36.31688

252316300

01-04-2019

37.8912

211328500

01-05-2019

35.13369

176656800

01-06-2019

38.77495

194738300

01-07-2019

40.43393

176600700

01-08-2019

39.55045

147930100

01-09-2019

38.39713

138279000

01-10-2019

34.7229

161549500

01-11-2019

34.98887

148552500

01-12-2019

35.7095

163581500

01-01-2020

33.18778

199703900

01-02-2020

34.2558

308100100

01-03-2020

29.86296

368561100

01-04-2020

39.56891

284329500

01-05-2020

45.24149

227159400

01-06-2020

52.29537

289890200

01-07-2020

55.11702

228002500

01-08-2020

54.6185

156441200

01-09-2020

52.1

187530200

01-10-2020

55.83

86811600

If we calculate the Average Monthly return and Std dev we find that

Current data

Average Monthly return

40.58956

Std dev

7.910597

Where as based on the past data we see these data are

Average Monthly return

29.07709105

Std dev

7.83870108

So we cann see the past price and the volume information is difference from the current one hence not influencing it .

Hence EHM theory holds true for this Semi –strong to Strong US markets as the publicly available information and news can be seen impacting the stock prices of EBAY . So EHM Holds True


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