Q2. (a)

Individual and institutional investors are currently using two approaches to plan and construct their portfolios, namely, traditional and modern portfolio management. Modern portfolio theory is considered as a better approach compared to the traditional approach. Is this statement correct? Provide your arguments with reference to the pros and cons of the approach. (13 marks)

(b) Despite considerable evidence in support of the EMH, there still exist some curious and as yet unexplained empirical results. In effect, some of the empirical studies have produced results that differed from what might be expected in a truly efficient market. These deviations from the norm are referred to as market anomalies. Describe the FOUR (4) behaviors embedded in a market anomaly.

(12 marks) [Total : 25 marks]