Chap8_solution - Suggested Solutions to Chap 8 Exercises...

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Suggested Solutions to Chap 8 Exercises Fin 367 Spring 2008 Professor Bing Han Chapter 8: 4. c. This is a classic filter rule, which would appear to contradict the weak form of the efficient market hypothesis. 7. c. The P/E ratio is public information so this observation would provide evidence against the semistrong form of the efficient market theory. 9. No, this is not a violation of the EMH. This empirical tendency does not provide investors with a tool that will enable them to earn abnormal returns; in other words, it does not suggest that investors are failing to use all available information. An investor could not use this phenomenon to choose undervalued stocks today. The phenomenon instead reflects the fact that stock splits occur as a response to good performance (i.e., positive abnormal returns) which drives up the stock price above a desired "trading range" and then leads managers to split the stock. After the fact, the stocks that happen to have performed the best will be split candidates, but this does not imply that you can
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Chap8_solution - Suggested Solutions to Chap 8 Exercises...

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