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“Money managers that outperform the market on a risk-adjusted basis in one year are likely to outperform in the following year”. Is this in violation of the Efficient Market Hypothesis?

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Lelia Lubowitz
Lelia LubowitzLv2
28 Sep 2019

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Related questions

Does the efficient market hypothesis imply that it is impossible for an investment manager to outperform a stock market benchmark (such as the S&P 500 for US large capitalization stocks) on a risk adjusted basis? Explain

3- proponents of the Efficient Markets Hypothesis tend to recommend:

a-Technical analysis

b-Earning analysis

c-Passive investing

d-Mutual funds

e-Lucky strike

4- Investors should pursue international investments for the following reasons:

a-Diversification benefits

b-Higher returns due to higher risk

c-Tax savings

d-All of the above

e-Only A and B

5- Top down investment analysis always includes:

a-Company analysis

b-Technical analysis

c-Industry analysis

d-Macroeconomics analysis

e-All of the above

6- which one of the following option strategies is the most risky?

a-Buying a put option

b-Writing a call option

c-Buying a call option

d-Buying a put and call on the same stock

e-Cannot tell without more info

7- computation of a risk-adjusted required return is best accomplished using

a-The dividend discount model

b-The price-earnings ratio

c-The market model beta

d-Momentum

e-Astrology

8- which of the following are both TRUE and evidence of market efficiency?

a-Stock prices seem to anticipate merger outcomes

b-Earnings announcement have no lasting impact on stock prices

c-Stocks exhibit significant price momentum

d-Mutual fund managers tend to outperform market averages

e-Small stocks earn higher returns, on average

Use the Security Market Line method and information below to determine the cost of equity (aka expected return) for Stock A and Stock B.

The risk free rate is based solely on the on the US treasury yield curve

The equity market (i.e. the S&P 500) is expected to return 10.0%

Stock A has a beta (sensitivity to the S&P 500) of 0.80

Stock B has a beta (sensitivity to the S&P 500) of 1.20

Assume the risk free rate is 2.0%. Which of the following statements is FALSE:

A) Stock A is less sensitive to the performance of the S&P 500

B) Both stocks have the same risk free rate

C) Stock B has a larger market risk premium because it has a higher beta

D) Stock B is expected to outperform Stock A by 2.2%

E) Stock A is expected to return 8.4%

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