Question

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

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

Homework Answers

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.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The efficient market hypothesis implies that Multiple Choice -all investments should earn the same average rate...
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...
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...
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...
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...
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...
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...
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...
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...
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...
Why Arbitrage Opportunities imply that the Efficient Market Hypothesis hold ? Explain...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT