Question

Explain why each of the following statements is either True or False.

A. If every investor followed a long-term “buy and hold” strategy, the stock market would not be efficient.

B. Stock A is trading at the top of its 52-week range, Stock B is trading at the bottom if its 52 week range. If the market is efficient, most rational investors would prefer Stock A to Stock B at their current prices.

C. Stock A is trading at the top of its 52-week range, Stock B is trading at the bottom of its 52 week range. If the market is efficient, one possible explanation for this information is that the operating performance of Company A during the past year exceeded investor expectations, while the operating performance of Company B disappointed investors.

Answer 1

A. If every investor followed a long-term “buy and hold” strategy, the stock market would not be efficient.

This statement is False , investor followed a buy and hold strategy , it would be an efficient market.

B. Stock A is trading at the top of its 52-week range, Stock B is trading at the bottom if its 52 week range. If the market is efficient, most rational investors would prefer Stock A to Stock B at their current prices.

The given statement is true , reason is rational investor means taking decision based on most optimal behavior so in the given statement , rational investor choosing optimal one so this is true.

C. Stock A is trading at the top of its 52-week range, Stock B is trading at the bottom of its 52 week range. If the market is efficient, one possible explanation for this information is that the operating performance of Company A during the past year exceeded investor expectations, while the operating performance of Company B disappointed investors.

This statement also true , because this is very fundamental concept, if a company exceeds investor expectations it will have high demand otherwise it will have low demand , the same concept is applied in this statement , so it is true.