Tutorial answers 2s - 2206 AFE Tutorial 2 Week 4 Answers...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
2206 AFE Tutorial 2 Week 4 Answers Chapter 6 Question 23, p.198 23. CFA Examination I (1992) 23(a). The notion that stock prices already reflect all available information is referred to as the efficient market hypothesis (EMH). It is common to distinguish among three versions of the EMH: the weak, semi-strong, and strong forms. These versions differ by their treatment of what is meant by “all available information.” The weak-form hypothesis asserts that stock prices already reflect all information that can be derived from studying past market trading data. Therefore, “technical analysis” and trend analysis, etc., are fruitless pursuits. Past stock prices are publicly available and virtually costless to obtain. If such data ever conveyed reliable signals about future stock performance, all investors would have learned to exploit such signals. The semi-strong form hypothesis states that all publicly available information about the prospects of a firm must be reflected already in the stock’s price. Such information includes, in addition to past prices, all fundamental data on the firm, its product, its management, its finances, its earnings, etc., that can be found in public information sources. The strong-form hypothesis states that stock prices reflect all information relevant to the firm, even including information available to company “insiders.” This version is an extreme one. Obviously, some “insiders” do have access to pertinent information long enough for hem to profit from trading on that information before the public obtains it. Indeed, such trading - not only the “insiders” themselves, but also relatives and/or associates - is illegal under rules of SEC. For weak-form or the semi-strong forms of the hypothesis to be valid does not require the strong-form version to hold. If the strong-form version was valid, however, both the semi-strong and the weak-form versions of efficiency would also be valid. 23(b). Even in an efficient market, a portfolio manager would have the important role of constructing and implementing an integrated set of steps to create and maintain appropriate combinations of investment assets. Listed below are the necessary steps in the portfolio management process. 1.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/09/2009 for the course ACCOUNTING 2206AFE taught by Professor Alexandrakimov during the Three '08 term at Griffith.

Page1 / 7

Tutorial answers 2s - 2206 AFE Tutorial 2 Week 4 Answers...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online