Question

An investor believes that they can make abnormal returns by studying past share price movements.

In terms of capital market efficiency, to which of the following does the investor’s belief relate?

Select one:

a. Fundamental analysis

b. Operational efficiency

c. Technical analysis

d. Semi-strong form efficiency

Answer 1

Abnormal return : An abnormal return describes the unusual profits generated by given securities or portfolios over a specified period. The performance is different from the expected, or anticipated, rate of return (RoR) for the investment. The anticipated rate of return is the estimated return based on an asset pricing model, using a long run historical average

or multiple valuations.

CAPM) is a framework used to calculate a security's or portfolio's expected return based on the risk-free rate of return, beta, and the expected market return. After the calculation of a security's or portfolio's expected return, the estimate for the abnormal return is by subtracting the expected return from the realized return. The abnormal return may be positive or negative, depending on the performance of the security or portfolio over the specified period.

2 ) in term of capital market efficiency, to which of the following does the investor’s belief relate?

Ans ) Fundamental analysis..

Company analysis is a process carried out by investors to evaluate securities, collecting info related to the company's profile, products and services as well as profitability. It is also referred as 'fundamental analysis.