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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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Assume that the efficient market hypothesis holds. Marcos has been recently hired by a brokerage firm and claims that he now has access to the best market information. However, he is the 鈥渘ew guy,鈥� and no one at the firm tells him much about the business. Would you expect Marcos鈥檚 clients to be better or worse off than the rest of the firm鈥檚 clients?
What are the two main sources of cash flows for a stockholder? How reliably can these cash flows be estimated? Compare the problem of estimating stock cash flows to the problem of estimating bond cash flows. Which security would you predict to be more volatile?
Firms in a perfectly competitive market are said to be 鈥減rice takers鈥濃�攖hat 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?
Why does entry occur?
In the late s, as information technology advanced rapidly and the Internet was widely developed, U.S. stock markets soared, peaking in early . Later that year, these markets began to unwind and then crashed, with many commentators identifying the previous few years as a 鈥渟tock market bubble.鈥� How might it be possible for this episode to be a bubble but still adhere to the efficient market hypothesis?
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