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Chapter 7: Q.8 (page 210)

鈥淚f stock prices did not follow a random walk, there would be unexploited profit opportunities in the market.鈥� Is this statement true, false, or uncertain? Explain your answer.

Short Answer

Expert verified

There would be no profit chances in the market if the stock price did not vary. The assertion is incorrect.

Step by step solution

01

Stock market : 

A market where businesses may register and sell long-term debt and securities to the general public.

02

Explanation :

There would be no profit chances in the market if the stock price did not vary. The price would become certain, there would be no danger, and there would be that much return on the securities, as well as market performance. Many individuals hold the company's shares, which is the primary cause for opportunities being exploited. As a result, the assertion is incorrect.

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Most popular questions from this chapter

Suppose that you are asked to forecast future stock prices of ABC Corporation, so you proceed to collect all available information. The day you announce your forecast, competitors of ABC Corporation announce a brand new plan to merge and reshape the structure of the industry. Would your forecast still be considered optimal?

If your broker has been right in her five previous buy and sell recommendations, should you continue listening to her advice?

鈥淎n efficient market is one in which no one ever profits from having better information than the rest of the market participants.鈥� Is this statement true, false, or uncertain? Explain your answer.

In the late 1990s, as information technology advanced rapidly and the Internet was widely developed, U.S. stock markets soared, peaking in early 2001. 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?

Visit the Bloomberg Markets website at www.bloomberg .com/markets/stocks. Their interactive graph allows you to see cumulative returns for individual stocks as well as market indices. Over the last five years, which of the three indices appears the most volatile鈥撯�搕he S&P 500 (SPX:IND), the Dow Jones Industrial Average (INDU:IND), or the NASDAQ Composite (CCMP:IND)? Which index would have been the best investment if compounded over the last five years?
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