QUESTION 5

(a) Your Aunt has just inherited US$ 5,000,000. She has been watching Bloomberg and sees the report that Barclays doubled profits for the year and have announced an acquisition of a large European Bank. She decides to do some research on the company so she went and examined the last 5 years profitability and other statistics of Barclays. She was very pleased and decided that given the strong historical performance of Barclays and the recent announcement that she should buy this stock. Advise your Aunt on this decision based on your knowledge of Efficient Market Hypothesis.[10 marks]

(b) Christopher has just gotten a job as a technical stock trader he believes he can earn abnormal profits over the long-term by trading the stocks that are most active on the stock market as they exhibit signs of semi-strong form of Efficient Market Hypothesis. Do you believe that Christopher will be successful with this strategy?[6 marks]

(c) What are the economic implications of having a stock market that is less than weak form efficient?[4 marks]