Market efficiency True or false? The
- a. There are no taxes.
- b. There is perfect foresight.
- c. Successive price changes are independent.
- d. Investors are irrational.
- e. There are no transaction costs.
- f.
Forecasts are unbiased.
To discuss: Whether the given statements are true or false.
Explanation of Solution
The false options are as follows:
The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.
Hence, option (a) is false.
The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.
Hence, option (b) is false.
The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.
Hence, option (d) is false.
There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.
Hence, option (e) is false.
The true options are as follows:
The successive price changes are consider as self-determining.
Hence, option (c) is true.
The projections are impartial in efficient market hypothesis.
Hence, option (f) is true.
Want to see more full solutions like this?
Chapter 13 Solutions
PRIN.OF CORPORATE FINANCE
- A critical assumption in the classical model is that a. markets are perfectly competitive in the long run b. markets clear in the long run c. markets are perfectly competitive in the short run d. markets clear in the short runarrow_forwardThe underlying assumptions of technical analysis are that A.price move in predictable patterns B. Market value is determined by market news C. Investors are rationalarrow_forwardWhat is weak-form EMH? What would you expect to see/not see if markets where weak form efficient? In other words, can you think of market events that would serve as evidence that market is or isn’t weak-form efficient?arrow_forward
- What is the additional assumption imposed by the CAPM model compared to the Markowitz procedures? O No taxes and transaction costs O Investors are rational, mean-variance optimizers O Investors can borrow or lend at a common risk-free rate, and short selling is allowed O Markets are perfectly competitive and investors are price takersarrow_forwardThe weak form of the efficient market hypothesis implies that: CHOOSE ONE A. Investors can achieve abnormal returns, on average, using technical analysis, after adjusting for transaction costs and taxes. B. Insiders, such as specialists and corporate board members, cannot achieve abnormal returns on average. C. No one can achieve abnormal returns using market information. D. NONE OF THE ABOVEarrow_forwardThe weak form of the efficient market hypothesis states that _______? Group of answer choices successive price changes are dependent. successive price changes are independent. successive price changes depend on trading volume. successive price changes are biased. properly specified trading rules are of value.arrow_forward
- Which of the following statements are true and which are false? I: Externalities are the only reason for market failure. II: The impact of a negative externality is accounted for by the market price. Both I and Il are false. Ol is true, Il is false. Ol is false, |l is true. Both I and Il are true.arrow_forwardWhich of the following is true according to the pure expectations theory? Forward rates:a. Exclusively represent expected future short rates.b. Are biased estimates of market expectations.c. Always overestimate future short rates.arrow_forwardSubject :- Accoutingarrow_forward
- The pricing efficiency of financial markets can be expected to decrease if the cost of skillful financial analysis increases. True Falsearrow_forwardIn the strong form of the market accoarding to the Efficient Market Hypothesis investor can earn excess returns by usin the available information. Select one: a. False b. Truearrow_forwardWhich of the following statements is false? A. Historical VaR simulation involves using past data as a guide to what will happen in the future. B. Illiquidity is observed when there is a large difference between the offered sale price and the bid price. C. Yield spared is reflected in the size of the bid-ask spreads. D. The stressed VaR is based on how market variables have moved during a particularly adverse time period.arrow_forward
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education