Question

true or false:

1. the fact that the avergae fund manager generates a negative alpha after fees proves that markets are efficient.

2. the post-earnings announcement drift is evidence that markets are inefficient relative to public information

3. the fact that stocks with high past returns tend to have positive abnormal returns is inconsistent with market efficiency

4. when an anomaly is due to a behavioral bias in teh way investor trade, then there is an arbitrage opportunity.

Answer 1

1. The fact that fund managers generates negative Alpha is a proof of market efficiency because market efficiency advocate that market price is reflective of all private as well as public Information and thus,the index return cannot be beaten.

Hence hence it is a true statement.

2. This is statement is true because Efficient markets generally do not react to any kind of public information on announcement of earnings.

So this statement is true.

3. This is a true statement because market efficiency advocates that all public as well as private informations are already discounted in the price, this is not consistent with market efficiency.

4. The given statement is false because there is no arbitrage opportunity due to behavioral bias.