Question

Please write 3-4 paragraphs to discuss whether you agree or disagree with the following statement:

Markets are efficient and most mutual fund managers and analysts cannot help investors improve returns to their portfolios.

Your discussion should also focus on the different roles played by analysts and portfolio managers.

Answer 1

Answer:

Efficient market hypothesis(EMH)- This theory says that markets are efficient and share prices reflect all information. Market price of stock only react to new information so it is not possible to beat the market. Theories and analysis fail when market comes down, a big news is enough to take the market down. Prices of stocks cannot be predicted on the basis of past data. There are three forms of EMH:

1. Strong form
2. Semi strong form
3. Weak form

There is no strategy/plan works in the stock market. Neither fundamental nor technical analysis can reap higher returns. Markets are neither absolutely efficient nor inefficient.

Arguments- EMH is not always correct, we can take the examples of many big inventors who have beaten the market and benchmark returns. For example; Warren Buffet, his investment strategy is to buy undervalued stocks at lower price and keep them for long run, you will definitely get higher returns over a period of time.

The only way, an investor can earn expected return by purchasing riskier investment alternatives and by investing into undervalued stocks, high risk, high return.