Which Is not an Implication of the EMH

question 40

Multiple Choice

Which is not an implication of the EMH?

• A) To do superior industry or company analysis you must understand the variables that affect returns and do a superior job of estimating these variables.
• B) Aggregate market analysis that involves very detailed analysis of reliable historical economic data should outperform a simple buy-and-hold policy.
• C) A superior analyst is one who can consistently select stocks that provide positive abnormal returns on a risk-adjusted basis.
• D) If a portfolio manager does not have any superior analysts, he/she should consider investing funds in an index fund.
• E) If a portfolio manager has some superior analytical skills, they should be encouraged to concentrate in second tier stocks which have liquidity, but may be neglected.

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Definitions:

Bromination

A chemical reaction involving the addition of bromine to a substrate, often for the purposes of halogenation in organic chemistry.

Nitrobenzene

An organic compound consisting of a benzene ring substituted with a nitro group (-NO2), used in the synthesis of aniline.

Anisole

An organic compound, specifically an ether, derived from methoxybenzene, used in perfume and pharmaceuticals.

Chlorobenzene

An aromatic organic compound with a chlorine atom substituting one hydrogen atom in benzene, used in the production of pesticides and industrial solvents.