Question

Answer please the Questions below in WRITTEN FORM ONLY - Written means that it has to be typed here not in a Picture

11) Explain whether the following would violate the efficient market hypothesis:
            A)    Intel has consistently generated large profits for years.   
            B)    Prices for stocks before stock splits show, on average, consistently positive abnormal returns.
            C)    Investors earn abnormal returns months after a firm announces surprise earnings.
            D)    High-earnings growth stocks fail to generate higher returns for investors than do low earnings growth stocks.

Answer 1

Answer :- In situation (C), Stock prices are not reflecting clearly all the available information about the stock which is fundamentally violation of Efficient market hypothesis (EMH), due to this, abnormal returs are earned by investor just because a sudden profits announced by company. In other situations (A, B and D), EMH is properly followed and as such, there is no violation at all.

Situation	Answer
A).	No violation of EMH.
B)	No violation of EMH.
C).	Yes, violation of EMH.
D).	No violation of EMH.

Conclusion :- In the situation (C) only, There is violation of Efficient market hyothesis (EMH), whereas, in other situations (A, B and D), EMH is not at all violated.