Essentials of Investments Chapter 5 Solutions

Essentials of Investments Chapter 5 Solutions - Essentials...

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Essentials of Investments (BKM 7 th Ed.) Answers to Selected Problems – Lecture 5 Chapter 8 : 1. Zero. If not, one could use returns from one period to predict returns in later periods and make abnormal profits. 2. c. “The January Effect” implies that one can predict January prices based on past January prices. This is a predictable pattern in returns which should not occur if weak-form EMH is valid. 3. c. This is a classic filter rule which should not be profitable in an efficient market. 5. c. The P/E ratio is public information and should not predict abnormal security returns. 13. a) The grandson is referring to the small-firm effect (which can also be described as the January effect). b) 1 - Building a portfolio of only small firms results in increased risk, as the portfolio is less diversified. 2 - Because the anomaly has existed in the past is not a predictor that the anomaly will exist in the future. 3 - After the results of these studies became publicly known, investors may bid up the
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This note was uploaded on 06/23/2009 for the course FIN FIN420 taught by Professor Alial-elg during the Spring '09 term at King Fahd University of Petroleum & Minerals.

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Essentials of Investments Chapter 5 Solutions - Essentials...

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