If Financial Markets Are Efficient, Then

question 89

Multiple Choice

If financial markets are efficient, then:

• A)there is reason to believe that prices are too high or too low
• B)it is possible to profit regularly from analysing publicly available information
• C)prices will adjust quickly to correctly reflect new information
• D)there will be periods where expectations are too bullish and too bearish
• E)historical price trends will give you a good idea of where prices are headed in the near future.

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Definitions:

S&P 500 Index

A stock market index in the United States composed of the market values of 500 major companies listed on either the New York Stock Exchange or NASDAQ.

Time-Weighted Return

A method of calculating investment returns that eliminates the impact of cash flows into and out of the portfolio, focusing solely on the performance of the investments themselves.

Information Ratio

A measure of portfolio returns beyond the returns of a benchmark, divided by the volatility of those returns.

Residual Standard Deviation

A measure of the amount by which an observed value differs from the value predicted by a model, indicating the precision of the model.