Question

Joe bought a stock at $57 per share. The price promptly fell to $55. Joe held on to the stock until it again reached $57, and then he sold it once he had eliminated his loss. If other investors do the same to establish a trading pattern, this would contradict _______.A. the strong-form EMHB. the weak-form EMHC. technical analysisD. the semistrong-form EMH

Answer 1

The correct answer is letter "B": the weak-form EMH.

Step-by-step explanation:

The weak-form efficiency is one of the three Efficient Market Hypothesis (EMH) that establishes that past stock prices movement does not help "predicting" future stock prices. In that sense, Joe held his shares until the price returned to the point where he purchased them to break even. If a trading pattern is created based on this, it will imply that the stock prices would repeat a movement that will lead them to return to a specific price level, so past stock prices movement will be useful to "predict" future price movement, which is the opposite that states the weak-form EMH.