Chapter 7: Q.14 (page 210)
Suppose that in every last week of November stock prices go up by an average of . Would this constitute evidence in favor of or against the efficient market hypothesis?
The assertion is false.
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“If stock prices did not follow a random walk, there would be unexploited profit opportunities in the market.” Is this statement true, false, or uncertain? Explain your answer.
“An efficient market is one in which no one ever profits from having better information than the rest of the market participants.” Is this statement true, false, or uncertain? Explain your answer.
“Foreign exchange rates, like stock prices, should follow a random walk.” Is this statement true, false, or uncertain? Explain your answer.
Firms in a perfectly competitive market are said to be “price takers”—that is, once the market determines an
equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market,
but you are not happy with its price, would you raise the price, even by a cent?
You are considering purchasing a -year bond and follow the theory of rational expectations. If you have just read the annual report of the central bank in your country that states interest rates are higher than expected, will you buy the bond today or in the next month?
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