Which of the following would violate the efficient market hypothesis?
a. Intel has consistently generated large profits for years.
b. High-earnings growth stocks fail to generate higher returns for investors than do low earnings growth stocks.
c. Prices for stocks before stock splits show, on average, consistently positive abnormal returns.
d. Investors earn abnormal returns months after a firm announces surprise earnings.

Question

11-11-2022
Business

contestada

Which of the following would violate the efficient market hypothesis?
a. Intel has consistently generated large profits for years.
b. High-earnings growth stocks fail to generate higher returns for investors than do low earnings growth stocks.
c. Prices for stocks before stock splits show, on average, consistently positive abnormal returns.
d. Investors earn abnormal returns months after a firm announces surprise earnings.

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GOURANGAKAMILYA GOURANGAKAMILYA · Answer 1 · 2022-11-15T10:55:33+01:00

The efficient market theory would be violated if investors earned extraordinary returns months after a company announced unexpected profits. Thus, the correct option is (d.) Investors earn abnormal returns months after a firm announces surprise earnings.

What exactly is the hypothesis of an efficient market?

The efficient-market hypothesis is a financial economics concept that asserts asset prices represent all available information. Because market prices should only react to fresh information, it is impossible to continually "beat the market" on a risk-adjusted basis.

Because the EMH is expressed in terms of risk adjustment, it can only offer testable predictions when combined with a specific risk model. As a result, financial economics research has focused on market anomalies, or departures from specified risk models, since at least the 1990s.

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