Asked by Tracy Winter on May 13, 2024
Verified
Assuming that markets are semistrong efficient,which of the following statements is correct?
A) All stocks should have the same expected return.
B) Past stock prices can be successfully used to forecast future stock returns.
C) Investors' most likely returns are those predicted by the SML, but one should not expect to do any better unless he or she has either good luck or access to information that is not publicly available.
D) Investors should expect to earn more than the returns that are predicted by the SML, because if they do not, they should not invest in the stock market.
Semistrong Efficient
A term from the Efficient Market Hypothesis indicating that all public information is reflected in stock prices, along with all historical data.
SML
The Security Market Line, a graphical representation of the capital asset pricing model (CAPM), showing the expected return of investments as a function of their beta or systemic risk.
Expected Return
The anticipated profit or loss from an investment over a specified period, factoring in all possible scenarios.
- Discern between the various market efficiency models and comprehend their ramifications.
Verified Answer
Learning Objectives
- Discern between the various market efficiency models and comprehend their ramifications.
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