ch6sol - CHAPTER 6 MARKET EFFICIENCY DEFINITION, TESTS AND...

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CHAPTER 6 MARKET EFFICIENCY – DEFINITION, TESTS AND EVIDENCE Problem 1 (a) Resources are allocated among firms efficiently (i.e. put to best use) (f) No group of investors will do better than the market consistently after adjusting for risk and transactions costs. Problem 2 No. The stock price should reflect this seasonal pattern in sales. If seasonal sales were better or worse than expected, you would expect to see an effect on stock prices. Problem 3 To test any market inefficiency, a model needs to be specified for expected returns. One cannot therefore test market efficiency alone without jointly testing an asset pricing model Problem 4 No. Demand and Supply are determined by real variables (including the intrinsic value). Problem 5 You should have looked at the merger announcement date (in the WSJ) and not at the effective date. Furthermore you should have started looking at days before the announcement date. Finally, by focusing on only the twenty largest mergers, you may be inducing sampling bias into your conclusions. Problem 6
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This note was uploaded on 06/09/2011 for the course FINS 3641 taught by Professor Xx during the Three '11 term at University of Sydney.

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ch6sol - CHAPTER 6 MARKET EFFICIENCY DEFINITION, TESTS AND...

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