FIN 300 Study Guide - Dividend Yield, Win-Win Game, Trading Strategy

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Answers to concepts review and critical thinking questions. Some investors are highly risk averse, and the extra possible return doesn"t attract them relative to the extra risk. Yes, historical information is also public information; weak form efficiency is a subset of semi-strong form efficiency. Ignoring trading costs, on average, such investors merely earn what the market offers; the trades all have zero npv. If trading costs exist, then these investors lose by the amount of the costs. Unlike gambling, the stock market is a positive sum game; everybody can win. Also, speculators provide liquidity to markets and thus help to promote efficiency. The emh only says, within the bounds of increasingly strong assumptions about the information processing of investors, that assets are fairly priced. An implication of this is that, on average, the typical market participant cannot earn excessive profits from a particular trading strategy.

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