Question

If financial markets are semi-strong form efficient, all investors can effectivley select stocks for their portfolio by throwing darts at the Wall Street Journal stock page. Any stock selected by dart throwing will be just as good an investment as stocks in a professionally-developed portfolio.

a. This is false because if you pick stocks via darts, investors may not up with a desirable risk-return combination.

b. This is false because professionals can guarantee higher portfolio performance given the same level of risk.

c. This is false because the markets are primarily dominated by institutional investors with deep pockets.

d. This is true because in a semi-strong form efficient stock market, all portfolios should earn the market rate of return.

e. This is true because semi-strong form efficiency means that all stocks are correctly priced -- given publicly available information.

Answer 1

The correct answer is

a.This is false because if you pick stocks via darts, investors may not up with a desirable risk-return combination.

Explanation:

Professionals are having experience about market histories. If we select via just throwing darts, it is possible that we select all the riskiests stocks which do not perform even in the strong and efficient market to come.

Professionals select stocks by managing risks i.e. selecting both high and low risk stocks in a neutral way and thus our average return on capital remains higher than selecting stocks by throwing dart.