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:

Superego

In Freudian psychoanalysis, the part of the psyche that acts as a moral center, incorporating the values and norms of society and acting as a counterbalance to the id.

Extinction Processes

In behavioral psychology, the gradual reduction and eventual disappearance of a conditioned response following the cessation of reinforcement.

Observational Learning

A learning process through which behaviors are acquired by watching and imitating others.

Attentional Processes

The mental activities involved in focusing on specific stimuli while ignoring others, and the mechanisms by which individuals select information for processing.