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Chapter 7: Q.14 (page 210)

Suppose that in every last week of November stock prices go up by an average of 3%. Would this constitute evidence in favor of or against the efficient market hypothesis?

Short Answer

Expert verified

The assertion is false.

Step by step solution

01

Efficient market theory :

It asserts that stock prices reflect all available information about a given stock quickly and thoroughly.

02

Explanation :

The assertion is false since, in an efficient market,

a) All participants in a financial market are required to be fully educated about market efficiency.

b) In a market with few participants, untapped profit opportunities are eliminated.

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Most popular questions from this chapter

If your broker has been right in her five previous buy and sell recommendations, should you continue listening to her advice?

Visit the Bloomberg Markets website at www.bloomberg .com/markets/stocks. Their interactive graph allows you to see cumulative returns for individual stocks as well as market indices. Over the last five years, which of the three indices appears the most volatile––the S&P 500 (SPX:IND), the Dow Jones Industrial Average (INDU:IND), or the NASDAQ Composite (CCMP:IND)? Which index would have been the best investment if compounded over the last five years?

Firms in a perfectly competitive market are said to be “price takers”—that is, once the market determines an

equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market,

but you are not happy with its price, would you raise the price, even by a cent?

The Internet is a great source of information on stock prices and stock price movements. Yahoo Finance is a great source for stock market data. Go to http://finance .yahoo.com and click on “Markets,” then “World Indices,” and then the DJI symbol to view current data on the Dow Jones Industrial Average. Click on the chart to manipulate the different variables. Change the time range and observe the stock trend over various intervals. Have stock prices been going up or down over the past day, week, three months, and year?

Eugene Fama and Robert Shiller recently won the Nobel Prize in economics. Go to http://nobelprize.org/ nobel_prizes/economics/ and locate the press release on Eugene Fama and Robert Shiller. What was the Nobel Prize to them awarded for? When was it awarded?
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