If a Firm Employs 5,000 Analysts, How Many of Them

question 26

Multiple Choice

If a firm employs 5,000 analysts, how many of them are likely to issue forecasts that beat the market eight years in a row, assuming none of them has any superior ability and that there are
No transaction costs?

• A)about 20
• B)about 50
• C)about 300
• D)less than 10

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Definitions:

Moral Hazard

A situation where one party is more likely to take risks because the negative consequences of the risk will be borne by another party.

Unobservable Actions

Actions taken by parties in a contract or agreement that cannot be directly observed or monitored by others.

Adverse Selection

A situation in which sellers have information that buyers do not, or vice versa, leading to an inefficient market outcome.

Adverse Selection

A situation in economics where one party in a transaction has more or better information compared to the other party, potentially leading to an inequitable outcome.