Question

The Efficient Market Hypothesis implies that future stock price movements should be random and unpredictable. Why?

Answer #1

As per the EMH, markets are efficient, and all securities reflect all information regarding them, and therefore all securities are fairly priced. In an efficient market, no investor can earn an excess return by any means because all securities are correctly priced.

If this were true, then no form of technical analysis should enable any investor to earn an excess return. If future stock price movements are not random and unpredictable, it means that technical analysis could be employed to earn an excess return. This goes against the assumption of EMH.

Therefore, the EMH implies that future stock price movements should be random and unpredictable.

The efficient market hypothesis implies that
Multiple Choice
-all investments should earn the same average rate of return
over time.
-any investment should earn a normal return commensurate with
the investment’s risk.
-efficient markets will tend to have fixed prices from one day
to the next.
-stock prices are only efficient when all investors review their
portfolios on a daily basis.
-investors must be disinterested in their investments for the
markets to be efficient.

According to the efficient markets hypothesis are stock prices
predictable? Why? And what is a random walk?

If the stock market is at least weak form efficient, then price
changes
should allow investors to earn abnormal returns
should follow patterns
should go up if the price went up the day before
should be random

Which of the following would invalidate the weak form of the
efficient market hypothesis?
a.
Patterns in price behavior that consistently predict future
price movements.
b.
Market analysis proves useful in discovering investment
opportunities.
c.
Stocks of smaller firms consistently outperform larger
firms.
d.
Shortly before she is arrested, a pharmaceutical company
researcher makes a large profit on her company's stock by buying
just before a new drug is approved by the Food and Drug
Administration.

State the Efficient Market Hypothesis.
Current price of Apple stock is $170 per share. It pays an
annual dividend of $12 per share. Equilibrium price in next year is
$190. What is the equilibrium rate of return?
An ‘insider’ in Apple leaks out to a friend that the company
will perform well, and the stock price could be $200 next year.
What is the rate of return on the stock?
Instead of leaking out information, if it is made available...

Which of the following statements is most correct?
If a market is strong-form efficient this implies that the
returns on bonds and stocks should be identical.
If a market is weak-form efficient this implies that all public
information is rapidly incorporated into market prices.
If a market is semi-strong weak-form efficient this implies
that all private information is rapidly incorporated into market
prices.
None of the above statements is correct.

1.is the stock market absolutely efficient? 2.if market is
efficient, January Effect should not exist. Do you agree?

1. If stock prices should be based on future cash flows (i.e.,
dividends) why do investors purchase stocks of companies that do
not pay dividends?
2. There are some that say that U.S. firms concentrate too much
on short-term profits and not enough on long-term profits. Do you
agree? How does this conflict with the valuation of stock based on
future cash flows.
3. Describe the Efficient Market Hypothesis.
4. Describe
Weak efficiency
Semi-strong efficiency
Strong efficiency
Which, if any,...

if the stronger version of the efficient market hypothesis is
true, so that stock prices reflect the true fundamental value of
the stock, the strategy that most investors should use when
investing is to
a) invest solely in mutual funds
b) follow the tips from the most prominent financial
advisors
c) continuously buy and sell of stocks
d) buy and hold a diversified set of stocks
suppose that your investment advisor calls you and tells you
that a certain stock...

Why Arbitrage Opportunities imply that the Efficient Market
Hypothesis hold ? Explain...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 8 minutes ago

asked 12 minutes ago

asked 49 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago