Efficient Market Hypothesis

AIM: Define market efficiency, identify the three forms of market efficiency, and discuss the link between efficiency and the CAPM.
Questions:

30.1 If the STRONG-FORM of efficient market hypothesis (EMH) is true, then which investor group can produce sustained alpha?

* a. Fundamental analysts
* b. Stock exchange specialists
* c. Corporate insiders
* d. No groups

30.2 Which is the best test of WEAK-FORM EMH?

* a. Autocorrelation of security returns
* b. Price-to-book ratio in Fama-French three factor model
* c. Returns for professional security analysts and money manager
* d. Event studies

30.3 Which is the best test of SEMISTRONG-form EMH (conditional on a priori acceptance of weak-form)?

* a. Autocorrelation of security returns
b. Price-to-book ratio in Fama-French three factor model
* c. Returns for professional security analysts and money manager
* d. Performance of algorithmic trading rule(s) based on market data; e.g., block trades

30.4 Which is the best test of STRONG-form EMH (conditional on a priori acceptance the semi-strong form)?

* a. Autocorrelation of security returns
* b. Price-to-book ratio in Fama-French three factor model
* c. Returns for professional security analysts and money manager
* d. PEG (price-to-earnings growth) ratio

Answers:

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