Unformatted text preview: form Tests of the strong form of market efficiency have analyzed whether professional money managers can
consistently outperform the market. The general finding is that although professional money managers on
average slightly outperform the market, the outperformance is not large enough to offset the fees paid for
their services. Thus, net of fees the recommendations from security analysts, and the investment
performance of mutual and pension funds fail to beat the average. Taken at face value, one natural
recommendation in line with these findings is to follow a passive investment strategy and "buy the index".
Investing in the broad stock index would both maximize diversification and minimize the cost of
managing the portfolio.
Another, perhaps more simple, test for strong form of market efficiency is based upon price changes close
to an event. The strong form predicts that the release of private information should not move stock prices.
For example, consider a merger between two firms. Normally, a merger...
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This note was uploaded on 10/26/2012 for the course 19 19 taught by Professor - during the Spring '12 term at Sunway University College.
- Spring '12