Question

Stephen encounters the Wall Street rule of thumb which states ""Sell in May and go away"". He then makes sure that he sells everything at the end of April and buys it back again in August. If he can generate consistent abnormal returns in this manner then this is a failure of:

Answer 1

Answer is weak form efficiency.

Step-by-step explanation:

The weak form efficiency suggests that today’s stock prices reflect all the data of past prices. This means that all past information is priced into securities.

This means that Stephen will make excess profits making use of the securities or portfolios that is available over a period of time. This is possible simply because of the failure of weak form efficiency.