Market efficiency True or false? The efficient-market hypothesis assumes that a. There are no taxes. b. There is perfect foresight. c. Successive price changes are independent. d. Investors are irrational. e. There are no transaction costs. f. Forecasts are unbiased.

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Answer 1

Textbook Question

Chapter 13, Problem 1PS

Market efficiency True or false? The efficient-market hypothesis assumes that

a. There are no taxes.
b. There is perfect foresight.
c. Successive price changes are independent.
d. Investors are irrational.
e. There are no transaction costs.
f. Forecasts are unbiased.

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

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Students have asked these similar questions

Which of the following statements is false? A. A short sale allows investors to generate additional profits from a decline in a security’s price. B. One of underlying assumptions of technical analysis is that supply and demand are driven by both rational andirrational investor behavior. C. Investors get a margin call if the equity in a margin account rises above the required maintenance level. D. Technical analysis cannot modify price manipulations.

If the weakest form of market efficiency holds, then security prices reflect all information found in past prices and volume. Thus, traditional "technical analysis" will not work. Group of answer choices True False

1. How can investors make decisions about financial instruments that involve future payoffs? a) There is no uncertainty in market economies. b) This can be done only when the future payoffs are certain. c) Prices are determined by supply and demand which is always certain. d) Investors can use probabilities and risk measurement procedures to account for all possibilities.

Answer 2

Textbook Question

Chapter 13, Problem 1PS

Market efficiency True or false? The efficient-market hypothesis assumes that

a. There are no taxes.
b. There is perfect foresight.
c. Successive price changes are independent.
d. Investors are irrational.
e. There are no transaction costs.
f. Forecasts are unbiased.

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

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Answer 3

Textbook Question

Chapter 13, Problem 1PS

Market efficiency True or false? The efficient-market hypothesis assumes that

a. There are no taxes.
b. There is perfect foresight.
c. Successive price changes are independent.
d. Investors are irrational.
e. There are no transaction costs.
f. Forecasts are unbiased.

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

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Answer 4

Textbook Question

Chapter 13, Problem 1PS

Market efficiency True or false? The efficient-market hypothesis assumes that

a. There are no taxes.
b. There is perfect foresight.
c. Successive price changes are independent.
d. Investors are irrational.
e. There are no transaction costs.
f. Forecasts are unbiased.

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

Answer 8

Expert Solution & Answer

Summary Introduction

To discuss: Whether the given statements are true or false.

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Summary Introduction

To discuss: Whether the given statements are true or false.

Answer 12

Explanation of Solution

The false options are as follows:

The efficient market hypothesis realize that investors read financial statements and recognize the influence of taxes.

Hence, option (a) is false.

The principles of arbitrage says that there is no perfect foresight in efficient market hypothesis.

Hence, option (b) is false.

The investors are rational. Most of the investors are impacted by their perception towards risk and their trust about probabilities as found in behavioural finance studies. In the case of arbitrage profit opportunities are excluded.

Hence, option (d) is false.

There are transaction cost. Most of the time the transaction cost are high for an example, some trading expenses are very high and some trades are hard to implement.

Hence, option (e) is false.

The true options are as follows:

The successive price changes are consider as self-determining.

Hence, option (c) is true.

The projections are impartial in efficient market hypothesis.

Hence, option (f) is true.