Question

Explain stock market efficiency. If the market is efficient, would you invest in each of the...

Explain stock market efficiency. If the market is efficient, would you invest in each of the following? Explain.

(i) fundamental funds

(ii) market-cap-weighted funds

(iii) and robo portfolios.

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Answer #1

The Efficient Market Hypothesis states that at any given time, the stock prices reflected in the market are derived from all the available information about that stock.

The aim of investment is to generate returns, and if the market is efficient i.e. the stock prices are correctly indicating a company's performance, then the investment would not generate any real returns for the investor. Therefore, if the Efficient Market Hypothesis is true, there is no point investing in the market as it would not generate any real returns for the investor.

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