Question

1) If you make superior returns by buying stocks after a 10% fall in price and selling stocks after a 10% rise, this is consistent with the weak form of EMH. (10points) a. True b. False

Answer 1

False

Step-by-step explanation:

It is FALSE that If you make superior returns by buying stocks after a 10% fall in price and selling stocks after a 10% rise, this is consistent with the weak form of EMH.

Weak Form of Efficiency Market Hypothesis states that individuals cannot use past knowledge, facts, or occurrence about stock to determine its future price.

In other words, past data or evidence has no connection with existing market prices.

Hence, if you make superior returns by buying stocks after a 10% fall in price and selling stocks after a 10% rise, that shows the existence of pattern or past information about the stock rising or falling prices determine future occurrence. This situation contradicts the Weak form of EMH