Hello. Just need some guidance on the following questions. Analyze reasons why good news for the economy (long term) isn’t always good news for stock and other financial markets (short term).Evaluate the assumption that stock price movements are purely random (the random walk theory), describing what a random walk is.Discuss the strengths and weaknesses of the efficient markets hypothesis.Explain the rationale for buying stocks when stock prices are not predictable, noting what kind of strategies would be useful for investing $100,000.

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Answered: Hello. Just need some guidance on the…

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter31: Capital Markets

Section: Chapter Questions

Problem 8E

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Hello. Just need some guidance on the following questions.

Analyze reasons why good news for the economy (long term) isn’t always good news for stock and other financial markets (short term).
Evaluate the assumption that stock price movements are purely random (the random walk theory), describing what a random walk is.
Discuss the strengths and weaknesses of the efficient markets hypothesis.
Explain the rationale for buying stocks when stock prices are not predictable, noting what kind of strategies would be useful for investing $100,000.

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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