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.”...
View
Full
Document
This note was uploaded on 11/15/2009 for the course ECON 3330 at Cornell.
 '08
 MBIEKOP
 Economics

Click to edit the document details