Question

Peter Lynch, a famous former fund manager for Fidelity, suggested that it is wise to invest...

Peter Lynch, a famous former fund manager for Fidelity, suggested that it is wise to invest in stocks based on "local knowledge" -- you invest in the stock of your local supermarket if you notice that it does better than expected. In an efficient stock market, is this a wise recommendation?

Homework Answers

Answer #1
According to the efficient market hypothesis, the share prices
reflect all available information. Furthermore, you cannot find undervalued
stocks based on fundamental and technical analysis, since the market
reflects all available information.
In an efficient stock market, the local knowledge you have of your local
supermarket is public information and is factored into the stock price.
In an efficient stock market, the price of the stock already reflects the local
knowledge you have and you should not invest in that stock.
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