Unformatted text preview: February, the strong form of the efficient markets hypothesis is violated. e. If stocks that perform well in one week perform poorly in the following week, the weak form of the efficient markets hypothesis is violated. 2. Suppose there are two independent economic factors, M 1 and M 2 . The riskfree rate is 7%, and all stocks have independent firmspecific components with a standard deviation of 50%. Portfolios A and B are both well diversified. Portfolio Beta on M 1 Beta on M 2 Expected Return A 1.8 2.0 29 B 3.2 1.0 6 What is the expected returnbeta relationship in this economy? 3. Evaluate the following statement: “Unlike the market return in CAPM which has a theoretical justification, the additional factors in multifactor index models only reflect datamining.”...
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 '08
 MBIEKOP
 Economics, Efficient markets, Active management, Efficientmarket hypothesis, Efficient markets hypothesis, Cornell University Gregory Besharov Economics

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