Question

Part 1 Attempt 1/4 for 10 pts. Which of the following statements are inconsistent with the efficient market hypothesis? Check all that apply: The average annual return on stocks is greater than zero. Stocks that outperform the index in March always underperform it in April. Half of fund managers are able to beat their relevant index each year, before fees. Stocks that outperform the index in March always outperform it in April. Submit

Answer 1

Answer:
Check all the 4 options, as all of them are inconsistent with the efficient market hypothesis:

Explanation:
efficient market hypothesis:
security prices already reflect all the available information.

So it is impossible to outperform the broader market.

Efficient market approach says that past price movement, earnings report and volume traded doesn't affect stocks Current price and can't be used to predict the stocks future directions.

In simple words, past performance doesn't guarantee the future performance of the stock price moment. This is because all the available information is already taken into consideration.

stock follows a Brownian motion that is a motion of a particle.

There is also no guarantee of annual average return being above zero.

We also call it random walk theory.

So the efficient market approach is a forecast backbreaker/poor forecaster not because of simple forecast models but due to Well-functioning financial markets.