The reaction of stock prices to the announcement of a stock split is covered by which form of the efficient market hypothesis (EMH)? A) Weak. B) Strong. C) Semistrong Answer is C,Why? ************************** Which of the following statements about the efficient market hypothesis is least accurate? A) Exchange specialists derive above-average returns from private information. B) Efficient markets tests have found that professional money managers, as a group, have consistently outperformed the market. C) The use of a price weighting versus a market value weighting produces a downward bias on the index. Answer is B, agreed…but the option C is no way related to EMh, correct? ********************** A “runs test” on successive stock price changes which supports the efficient market hypothesis would show that the actual number of runs: A) falls into the range expected of a random series. B) is small. C) falls into the range expected of a dependent series. Answer is A The weak form of the efficient market hypothesis argues that, over time, security returns are independent of each other. Runs tests contend that stock price changes (upticks and downticks) are independent over time. Can someone explain? *************************
"The weak form of the efficient market hypothesis argues that, over time, security returns are independent of each other. Runs tests contend that stock price changes (upticks and downticks) are independent over time. " what’s the difference between the above 2 sentences??? as for the answer, its clearly A. C is eliminated cos it proves the opposite of EMH, and B would mean momentum exists as for the first question the strong form includes the semistrong too…so one can argue its B, but C is more appropriate…Weak form deals with past-future price correlation
The first and second questions relating to the semi strong form. Stock spit, a public information, does affect the price of the share and causes a downward bias on price weight index. In the last question, you should guess because most of us have not learned deeper into this kind of test in statistic. The reason to conduct this test is to prove that stock price from the past does not have relationship with the present. The key words here is random, independent, dependent… The result of the test was accepting the null hypothesis, so stock price movement should be random. Eventually, you will know which answer is.
For the third question, runs test kind of confirms what is said in the first part of the sentence. Several tests have been performed to support the EMH (weak form), runs test is one of them.