Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Your friend’s portfolio consistently plots above the Security Market Line. As a result,
your friend claims to know how to earn abnormal returns. Thus, your friend tries to
convince you that the market is not efficient. How should you respond?

A) You should totally agree; this is direct evidence against market efficiency
B) Tell your friend that this should be expected due to the Momentum effect
C) Tell your friend that it is hard to measure risk (Joint Hypothesis Problem); maybe
the market is efficient, or maybe risk is being measured improperly 

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