ch8sol - through the business cycle these should not show...

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Chapter 8 2. c. This is a predictable pattern in returns, which should not occur if the stock market is weakly efficient. 3. c. This is a classic filter rule, which would appear to contradict the weak form of the efficient market hypothesis. 4. b. This is the definition of an efficient market. 7. a. The information should be absorbed instantly. 8. b. Since information is immediately included in stock prices, there is no benefit to buying stock after an announcement. 9. c. Stocks producing abnormal excess returns will increase in price to eliminate the positive alpha. 14. No, this is not a violation of the EMH. Microsoft’s continuing large profits do not imply that stock market investors who purchased Microsoft shares after its success already was evident would have earned a high return on their investments. 16. While positive beta stocks respond well to favorable new information about the economy’s progress
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Unformatted text preview: through the business cycle, these should not show abnormal returns around already anticipated events. If a recovery, for example, is already anticipated, the actual recovery is not news. The stock price should already reflect the coming recovery. 17. a. Consistent. Half of all managers should outperform the market based on pure luck in any year. b. Violation. This would be the basis for an "easy money" rule: simply invest with last year's best managers. c. Consistent. Predictable volatility does not convey a means to earn abnormal returns. d. Violation. The abnormal performance ought to occur in January, when the increased earnings are announced. e. Violation. Reversals offer a means to earn easy money: simply buy last week's losers. 19 a. omitted. Please see textbook and my notes for details....
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