Question
1. What is the random walk hypothesis, and how does it apply to stocks? What is an efficient market? How can a market be efficient
1. What is the random walk hypothesis, and how does it apply to stocks? What is an efficient market? How can a market be efficient if its prices behave in a random fashion?
2. Explain why it is difficult, if not impossible, to consistently outperform an efficient market.
a) Does this mean that high rates of return are not available in the stock market?
b) How can an investor earn a high rate of return in an efficient market?
3. What are market anomalies and how do they come about? Do they support or refute the EMH? Briefly describe each of the following:
a) The January effect b) The size effect c) The value effect
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