Answered: Stocks with high market betas have…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

Stocks with high market betas have higher expected returns than stocks with low market betas. This evidence is inconsistent with
I. The weak form efficient market hypothesis
II. The semi-strong form efficient market hypothesis
III. The strong form efficient market hypothesis

a) I, II, and III

b) I and II

c) I

d) None of I, II, and III

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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