What is random walk theory. Explain three form of market efficiency.
What is random walk theory. Explain three form of market efficiency.
Homework Answers
Random walk theory : It means price of stock does not depends on it's past movement or any analysis it is purrely independent.Future prices of a stock can't be predicted using it's past data or performance.As per this theory price of stock moves in a random or unpredictable manner and price of a stock can't be determined using any method or analysis of any past data.
Three form of market efficiency are as follows :
i) Weak form : Stock price incorporate all past data and historical information.It reflects current market position of the company.
ii) Semi Strong form : Stock price incorporate all historical and publicaly available information.Stock price incorporate all disclosed information.
iii) Strong form : Stock price incorporate all publicaly available information and also private information.Stock price incorporate all types of information.
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What is random walk theory. Explain three form of market
efficiency.
1. Market efficiency &
1. Market efficiency (5 marks) a. Identify and describe the three forms of market efficiency. Do not use more than five sentences for each form of market efficiency. Make sure your descriptions discuss information dispersion and identification of mispriced securities. (4 marks) b. Based on your knowledge and understanding of the three forms of market efficiency, which form do you think most appropriately describes the Toronto Stock Exchange? Explain your answer.
Explain the three forms of market efficiency under the efficient markets hypothesis.
Explain the three forms of market efficiency under the efficient markets hypothesis.
Which of the following statement(s) is/are false? I. In an efficient market (strong form efficiency), fundamental...
Which of the following statement(s) is/are false? I. In an efficient market (strong form efficiency), fundamental analysis still provides value to an investor II. Based on the semi-strong form of the efficient market theory, an investor reacting immediately to a news flash on the television generaly cannot make a reasonable profit. III. Retail investors prefer weak form efficiency over strong form efficiency I only O ll only Ill only O 1 & Ill only O None of the above answers
Question five: a) What are meant with permanent and transitory fluctuations according to random walk of...
Question five: a) What are meant with permanent and transitory fluctuations according to random walk of GDP theory? b) One of the issues debated in real business cycle theory is the disturbance that hit the economy. Explain what is meant with this disturbance.? c) Compare between proposition by perfect foresight model and Lucas model regarding how Monetary Policy can effect output in the short and long run. ?
In a well functioning market, asset prices... A. Should follow a random walk B. Will move...
In a well functioning market, asset prices... A. Should follow a random walk B. Will move up and down with fundamentals such as aggregate dividends C. Should not be predictable D. Should form a martingale
a) Explain clearly the three forms of market efficiency. Why is it important for the market...
a) Explain clearly the three forms of market efficiency. Why is it important for the market to be informationally efficient? (5 marks) b) Identify and explain which forms of efficiency are adhered to and/or violated in each of the following hypothetical situations: i. A group of students has created a trading rule which appears to outperform the UK market. ii. The return on professionally managed portfolios of equities is likely to be no better than that which could be achieved...
explain what is meant by the term “economic efficiency.” From the standpoint of economic efficiency, is...
explain what is meant by the term “economic efficiency.” From the standpoint of economic efficiency, is it a worthwhile goal to eliminate all pollution? 4.what is the “first theorem of welfare economics? “illustrate an efficient outcome for 2 individuals using the Edgeworth box diagram. Explain the conditions under which a market economy would be expected to achieve Pareto efficiency. Provide three examples of “market failure “that are relevant to environmental and natural resource economics.
What form of violation of market efficiency is the following? Research demonstrates that the portfolio of...
What form of violation of market efficiency is the following? Research demonstrates that the portfolio of stocks of companies announcing stock repurchase programs over-perform the portfolio of other stocks over a four year period after the announcement. Strong Semi-strong. Weak. None.
A believer in the “random walk” theory of stock markets thinks the value of an index...
A believer in the “random walk” theory of stock markets thinks the value of an index of stock prices has a 0.65 probability of rising in any year. The change in the value of the index in any given year is not affected by whether it rose or fell in earlier years. You plan to record the value for the index in each of the next eight years. Let the random variable, X, represent the number of years (out of...
1. Random Walk: Consider a random walk described by the following probability rules: P(+x) 0.5; P...
1. Random Walk: Consider a random walk described by the following probability rules: P(+x) 0.5; P(-x) 0.1; P(ty) 0.2; P(-y) 0.2 (a) Is the walk biased? If so in which direction? Explain. (b) Compute the following for N steps if the step size is equal to a: <x>, <y>, <x>, <y (c) After long time (after large number of steps, where would the object be found? (find σ, and
1. Random Walk: Consider a random walk described by the following...
Which of the following statement(s) is/are false? I. In an efficient market (strong form efficiency), fundamental analysis still provides value to an investor II. Based on the semi-strong form of the efficient market theory, an investor reacting immediately to a news flash on the television generaly cannot make a reasonable profit. III. Retail investors prefer weak form efficiency over strong form efficiency I only O ll only Ill only O 1 & Ill only O None of the above answers
a) Explain clearly the three forms of market efficiency. Why is it important for the market to be informationally efficient? (5 marks) b) Identify and explain which forms of efficiency are adhered to and/or violated in each of the following hypothetical situations: i. A group of students has created a trading rule which appears to outperform the UK market. ii. The return on professionally managed portfolios of equities is likely to be no better than that which could be achieved...
What form of violation of market efficiency is the following? Research demonstrates that the portfolio of stocks of companies announcing stock repurchase programs over-perform the portfolio of other stocks over a four year period after the announcement. Strong Semi-strong. Weak. None.
1. Random Walk: Consider a random walk described by the following probability rules: P(+x) 0.5; P(-x) 0.1; P(ty) 0.2; P(-y) 0.2 (a) Is the walk biased? If so in which direction? Explain. (b) Compute the following for N steps if the step size is equal to a: <x>, <y>, <x>, <y (c) After long time (after large number of steps, where would the object be found? (find σ, and
1. Random Walk: Consider a random walk described by the following...
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