Question

Suppose that, after conducting an analysis of past stock prices, you come up with the following observations. Which would appear to contradict the weak form of the efficient market hypothesis?

1) Stock prices follow a random walk pattern.
2) Historical stock prices can be used to predict future stock prices.
3) There is no correlation between past stock prices and future stock prices.
4) Stock prices are influenced by public information.

Answer 1

Options 2) and 4) would appear to contradict the weak form of the efficient market hypothesis.

Step-by-step explanation:

The weak form of the efficient market hypothesis states that stock prices reflect all past market data, and therefore, it is impossible to predict future stock prices based on historical stock prices or any other information that is publicly available. However, the observations that would appear to contradict the weak form of the efficient market hypothesis are:

1. Historical stock prices can be used to predict future stock prices. This contradicts the idea that stock prices follow a random walk pattern, as it suggests that past prices contain valuable information for predicting future prices.
2. Stock prices are influenced by public information. This contradicts the idea that stock prices do not have any correlation with past stock prices, as it suggests that public information can affect stock prices.

Therefore, options 2) and 4) would appear to contradict the weak form of the efficient market hypothesis.