Question
In: Finance
If a market is __________ form efficient, there is no point in hiring technical or fundamental...
If a market is __________ form efficient, there is no point in hiring technical or fundamental analysts.
If insiders are able to earn abnormal profits, markets ___________ (are/ are not) strong form efficient.
Mutual funds are not able to produce positive alphas consistently. This __________ (violates / supports) the idea that markets are _________ (weak / semi-strong / strong) form efficient.
Solutions
Expert Solution
If a market is strong form efficient, there is no point in hiring technical or fundamental analysts.
If insiders are able to earn abnormal profits, markets are not strong form efficient.
Mutual funds are not able to produce positive alphas consistently. This supports the idea that markets are strong form efficient.
The Efficient Market Hypothesis (EMH) states that no mutual fund can consistently outperform the market because it is impossible to beat the market in long run. The Efficient Market Hypothesis assumes that all the available information fully reflects in the prices and it reacts only to the new information. So, there is no point in hiring technical or fundamental analysts. If EMH holds it is impossible to sell at overvalued price and buy at undervalued price so, no portfolio manager can bit the market by his efficient stock selection and by timing the market if it is strong form efficient. If insiders are able to earn abnormal profits that means markets are not strong form efficient.
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