The general finding is that although professional

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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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