Question
(a) Evaluate implications of Efficient Market Hypothesis on portfolio management (8 Marks) (b) Given the following situations, evaluate in each scenario whether the hypothesis of
(a) Evaluate implications of Efficient Market Hypothesis on portfolio management
(8 Marks)
(b) Given the following situations, evaluate in each scenario whether the hypothesis of an
efficient capital market of semi-strong form is violated:
(i) Through the introduction of an advanced webinar into the analysis of the past share
price movements, a brokerage firm is able to predict price movements are able to earn
consistent 1% profit more than normal market returns after adjusted for risk.
(4 Marks)
(ii) On average, investors in the stock market this year are expected to earn a positive
return on their investment. Some investors will earn considerably more than others.
(4 Marks)
(iii) You have discovered that the square root of any given stock price multiplied by the
day of the month provides an indication of the direction in price movement of that
particular stock with a probability of 20%.
(4 Marks)
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