Suppose that, after conducting an analysis of past stock prices, you come up with the following observations.

Suppose that, after conducting an analysis of past stock prices, you come up with the following observations. Which would appear to contradict the weak form of the efficient market hypothesis?

The average rate of return is significantly greater than zero.
The correlation between the return during a given week and the return during the following week is zero.
One could have made superior returns by buying stock after a 10% rise in price and selling after a 10% fall.
One could have made higher-than-average capital gains by holding stocks with low dividend yields.

Expert Solution

One could have made superior returns by buying stock after a 10% rise in price and selling after a 10% fall.

Weak form of EMH states that past return or trend cannot determine the future trend of the stock. Thus the above statement contradicts the weak form of EMH.

jeff jeffy answered 2 years ago

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