Question

Briefly explain two major responsibilities of portfolio managers in an efficient market environment.

Answer 1

Efficient market environment focuses that no portfolio managers can be able to beat index rate of return because all the publicly available information and the privately available information have already been discounted into the stock price.

Two major responsibilities of the portfolio managers in an Efficient market environment would be-

A.not to enter into any kind of arbitraging and hedging opportunities because they will not be leading into any additional rate of return because the market will be efficient in nature.

B. portfolio managers should be adopting passive management strategies because passive management strategies would be helpful in making a return that would be in line with the overall market rate of return and they will never underperform the market.