The Durkin Investing Agency has been the best stock picker in the country for the past two years. Before this rise to fame occurred, the Durkin newsletter had 200 subscribers. Those subscribers beat the market consistently, earning substantially higher returns after adjustment for risk and transaction costs. Subscriptions have skyrocketed to 10,000. Now, when the Durkin Investing Agency recommends a stock, the price instantly rises several points. The subscribers currently earn only a normal return when they buy recommended stock because the price rises before anybody can act on the information. Briefly explain this phenomenon. Is Durkin’s ability to pick stocks consistent with market efficiency?

The Durkin Investing Agency has been the best stock picker in the country for the past two years. Before this rise to fame occurred, the Durkin newsletter had 200 subscribers. Those subscribers beat the market consistently, earning substantially higher returns after adjustment for risk and transaction costs. Subscriptions have skyrocketed to 10,000. Now, when the Durkin Investing Agency recommends a stock, the price instantly rises several points. The subscribers currently earn only a normal return when they buy recommended stock because the price rises before anybody can act on the information. Briefly explain this phenomenon. Is Durkin’s ability to pick stocks consistent with market efficiency?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 9P

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