Reference no: EM132465341

Finance research has shown that managers of actively managed mutual funds or exchange traded funds (ETF), on average, do not outperform the overall stock market as measured by the S&P 500 index . In the long-run, nearly 80% of fund managers were unable to beat the overall stock market return. The year 2013 is a good example when the S&P 500 yielded nearly 29% return, which was better than the average return on 95% of actively managed stock portfolios with similar risk.

(a) If you believe these results which seem to support informational efficiency of equity markets in U.S., what would be your investment strategy so that your average long-run returns are better than the returns realized by more than two-third (75%) of professional money managers of actively traded funds. Explain.

(b) If equity markets are informationally efficient and rational to a larger extent, how would you explain the stock market bubble of 2008 in the presence of efficient markets.