Question

1. Explain what you would assume the yield curve would look like during economic expansion and why.

2. Why are investors and managers concerned about stock market efficiency?

Answer 1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

note: ONLY 1 QUESTION PER POST.

1. An upward sloping yield curve is observed during economic expansion.

In an upward sloping yield curve:

Long terms yield rates are higher than short term yield rates.

It is because investors feel that the current situation is strong & stable due to expansion, hence expect lower short term yield rates.

2. The efficient market hypothesis says that:

The security prices already reflect all the available information.

The efficient market hypothesis says that past price movement, earnings report and volume traded doesn't affect stocks Current price and can't be used to predict the stocks future directions.

In simple words, past performance doesn't guarantee the future performance of the stock price moment. The stock price follows a Brownian motion. That is stock price moment is random that's why it's also called a random walk theory.

It helps the investors and Managers to behave rationally & make more sensible choices.

Market efficiency is important to protect the existing investment from any abnormal effects of inefficiency.