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22 Mar 2018

Is the efficient market hypothesis a satisfactory explanation for financial market behavior? Discuss the evidence for and against the applicability of the hypothesis, and determine which evidence is most compelling? What investment method would you select to develop your own portfolio?

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Jarrod Robel
Jarrod RobelLv2
23 Mar 2018

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1. Briefly state and discuss the three forms of the efficient market hypothesis (EMH). What is the main implication that comes out of all forms of the EMH?

2. In the predictability lecture, we discussed evidence concerning violations of the weak form of the EMH that are based upon lagged return trading strategies. Briefly discuss the three types of strategies (that is, long, intermediate, and short return horizons). In your discussion of each horizon, discuss the basic method used to form portfolios, what the results are (that is, do returns exhibit reversals or continuations), and the average level of profits.

FINANCIAL MARKETS

Based on your experiences with financial markets , provide a brief explanation of financial markets. Address the following:

Does the efficient market hypothesis apply to all financial markets? Explain.

What factors can affect the efficiency of all or some of the markets?

Which financial markets have you used recently?

True or False Questions:

1. Financial Advisors are not influenced by crowd behavior.

2. Most professional money managers do better than their benchmarks (e.g., S&P 500 index).

3. Technical analysis assumes that fundamental information about the market is already reflected in the market and the market activity.

4. Investor sentiment is the most important indicator when analyzing a financial market.

5. If your friend tells you that he is "long gold," it means that he has invested in gold with an expectation of the price rising.

6. Market bubbles have only occurred in the US.

7. If your forecast for a particular market is correct, you will always make money.

8. The Efficient Market Hypothesis is the foundation of George Soros' investment philosophy.

9. Ken Fisher's market forecasts are always accurate.

10. Behavioral finance is about how people are theoretically supposed to behave with respect to financial markets.

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