Your friend’s portfolio consistently plots above the Security Market Line. As a result, your friend claims to know how t
Posted: Wed Mar 30, 2022 3:49 pm
Your friend’s portfolio consistently plots above the Security
Market Line. As a result, your friend claims to know how to earn
abnormal returns. Thus, your friend tries to convince you that the
market is not efficient. How should you respond?
A) You should totally agree; this is direct evidence
against market efficiency
B) Tell your friend that this should be expected due to
the Momentum effect
C) Tell your friend that it is hard to measure risk (Joint
Hypothesis Problem); maybe
he market is efficient, or maybe risk is being measured
improperly
D) none of the above
Market Line. As a result, your friend claims to know how to earn
abnormal returns. Thus, your friend tries to convince you that the
market is not efficient. How should you respond?
A) You should totally agree; this is direct evidence
against market efficiency
B) Tell your friend that this should be expected due to
the Momentum effect
C) Tell your friend that it is hard to measure risk (Joint
Hypothesis Problem); maybe
he market is efficient, or maybe risk is being measured
improperly
D) none of the above