Question

If you believe in the strong form efficient market hypothesis, which one of these is a...

If you believe in the strong form efficient market hypothesis, which one of these is a bad reason to hire a money manager?

a.To optimize your portfolio for your individual risk tolerance

b. To build a portfolio with an unusually high Sharpe ratio

c.To minimize your tax liability

d. To efficiently handle the paperwork involved with your investments

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Answer #1

here the option b.To build a portfolio with an unusually high Sharpe ratio.

the portfolio with higher sharpe ratio will only posible when the manager is able to find the stocks that have higher return than the market that means to identify the undervalued stocks. while the efficient market hypothesis states that anyone can not predict the market because market is following the random walk so it is not possible for anyone to findout undervalued stocks from the market because we can't predit the return on any stock. so we should not higher money manager for this purpose because he will not be able to build the portfolio with higher sharpe ratio.

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