Chapter 2: Question 8-6CP (page 261)

A market anomaly refers to:
a. An exogenous shock to the market that is sharp but not persistent.
b. A price or volume event that is inconsistent with historical price or volume trends.
c. A trading or pricing structure that interferes with efficient buying and selling of securities.
d. Price behavior that differs from the behavior predicted by the efficient market hypothesis.

Expert verified

The correct answer is ‘d’

Step by step solution

Usually considered as an exception, market anomalies are distortions in return contrary to the efficient market hypothesis.

As per the definition above, unexpected price behavior in themselves are anomalies.

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Statement Number	Statement
1	Investments should offer strong return potential but with very limited risk. I prefer to be conservative and to minimize losses, even if I miss out on substantial growth opportunities.
2	All nongovernmental investments should be in industry-leading and financially strong companies.
3	Income needs should be met entirely through interest income and cash dividends. All equity securities held should pay cash dividends.
4	Investment decisions should be based primarily on consensus forecasts of general economic conditions and company-specific growth.
5	If an investment falls below the purchase price, that security should be retained until it returns to its original cost. Conversely, I prefer to take quick profits on successful investments.
6	I will direct the purchase of investments, including derivative securities, periodically. These aggressive investments result from personal research and may not prove consistent with my investment policy. I have not kept records on the performance of similar past investments, but I have had some “big winners.”