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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“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.
Compute the price of a share of stock that pays a per year dividend and that you expect to be able to sell in one year for , assuming you require a return.
“Anytime it is snowing when Joe Commuter gets up in the morning, he misjudges how long it will take him to drive to work. When it is not snowing, his expectations of the driving time are perfectly accurate. Considering that it snows only once every ten years where Joe lives, Joe’s expectations are almost always perfectly accurate.” Are Joe’s expectations rational? Why or why not?
Suppose that you decide to play a game. You buy stock by throwing a dice a few times, using that method to select which stock to buy. After ten months you calculate the return on your investment and the return earned by someone who followed “expert” advice during the same period. If both returns are similar, would this constitute evidence in favor of or against the efficient market hypothesis?
Would independent trucking fit the characteristics of a perfectly competitive industry?
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