Which of the following statements about the efficient market hypothesis, security markets, options, and real estate is least accurate? A) The depth of the market is typically defined as the number of traders willing to trade at prices above and below the current price. B) Warrants are very similar to call options except that they are issued by the firm and typically have longer maturities than call options. C) Returns on real estate investments typically have low correlations with returns on stocks and bonds. D) Efficient market studies have found that no trading strategy outperforms the market.
A? Depth is based in volume?
No, it’s definitely not A. Depth is related to range of buy/sell price acceptability by participants. I’m thinking D. However, they are limited and do not factor in transaction costs or risk-adjusted returns usually.
c.
A B all look accurate to me. C is sort of conflicting. Bonds and Stocks have inverse co-relation, so how could Release state have low co-relations to both of them? going up sometimes with bonds, and going up sometimes with equity? doubt it. D can be the answer too i think. insider trading strategy definitely outperforms market I’d pick D.
edit: i guess D is more correct… there are market anomalies and insiders
It has to be D. If your strategy is to trade on inside information, then you will absolutely beat the market. You would violate standard II(A), however…
How are warrants and call options similar? Could someone please explain?
D is wrong. January Anomalies, etc. If they said “Consistently” then D would be better.
willispierre Wrote: ------------------------------------------------------- > It has to be D. If your strategy is to trade on > inside information, then you will absolutely beat > the market. You would violate standard II(A), > however… Since when is trading on inside information a trading strategy? Not only is it in violation of ethics, but it is illegal. I hardly consider illegal activities among the trading strategies that the question is referring to.
C
willispierre Wrote: ------------------------------------------------------- > It has to be D. If your strategy is to trade on > inside information, then you will absolutely beat > the market. You would violate standard II(A), > however… The difference is a warrant is issued and guaranteed by a firm vs. a call option is a security instrument not backed by a specific firm. Also warrants expiration’s are measured in terms of years vs. call option’s expiration date is measured in months I would be lying if I said I knew that off the top of my head but I looked it up at investopedia.com
this isnt a very good question, especially as no answer jumps out at you. given that they are referring to the efficient mkt hyp it has to be D.
Definitely D. BV/MV, P/E, size effect etc etc all contradict EMH
C for sure.
Those aren’t trading strategies. Investing and trading are different.
JayJeon, do you have the right answer plz
marjuhrene Wrote: ------------------------------------------------------- > willispierre Wrote: > -------------------------------------------------- > ----- > > It has to be D. If your strategy is to trade > on > > inside information, then you will absolutely > beat > > the market. You would violate standard II(A), > > however… > > > The difference is a warrant is issued and > guaranteed by a firm vs. a call option is a > security instrument not backed by a specific > firm. > > Also warrants expiration’s are measured in terms > of years vs. call option’s expiration date is > measured in months > > I would be lying if I said I knew that off the top > of my head but I looked it up at investopedia.com > investment industry So a warrant is essentially a call option and if there are call options and warrants outstanding with the same strike and same maturity and the call has no counterparty risk, then you are indifferent. The big difference is that companies issue warrants to raise capital, essentially selling call options on their own stock. If the warrants expire in the money, the company creates new stock which dilutes the value of everyone else’s stock. That means that accounting for warrants is part of your FSA study in the “diluted calculations” part. Options (not employee stock options) have nothing to do with the company so are not part of the company’s accounting. Of course, sometimes a warrant is something that the marshal or police hand you before they cuff you. This sucks and is something you would definitely forego in favor of owning call options.