Suppose You Discover a Mutual Fund That Has Consistently Earned

question 59

Essay

Suppose you discover a mutual fund that has consistently earned higher returns than
the market, on a risk-adjusted basis, and believe that the fund manager is truly a
superior analyst. Should you expect to earn excess returns by investing in this fund?
Explain.

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Definitions:

Monopoly Power

The ability of a single supplier in a market to dictate prices and control output, usually due to the lack of competition.

Sherman Act

A landmark federal statute in the United States antitrust law passed by Congress in 1890 to prohibit monopolies and foster competition.

Price-Fixing

An illegal agreement among competitors to set prices at a certain level, rather than letting them be determined naturally by market forces.

Clayton Act

A U.S. antitrust law enacted in 1914, aimed at promoting competition and preventing monopolies by prohibiting certain practices that could lead to anticompetitive behavior.