Identify the form of market efficiency violated

Assignment Help Business Economics

Reference no: EM131166501

(a) Identify the form of market efficiency violated in the following cases:

i. Through the introduction of a complex computer program into the analysis of past stock price changes, a brokerage rm is able to predict price movements well enough to earn a consistent 3% prot, adjusted for risk.

ii. Finance researchers have shown that a portfolio of stocks with low Price per share/Earnings per share (PE) ratios generates higher abnormal returns than a portfolio of stocks with high PE ratios.

iii. Finance.yahoo.com allows you to nd recent insider trades of public compa- nies. You can use data from this website to form portfolios on the basis of such trades. You can buy a portfolio of companies whose insiders recently bought signicant amount of stock in their own company, and short-sell a portfolio of companies whose insiders recently sold a lot of their own stock. This investment strategy on average earns positive abnormal returns.

(b) During a trading day Green Jacket Golf Inc. announces that it has lost a contract for a large gol ng project that, prior to the news, it was widely believed to have secured. If the market is semi-strong eficient, but not strong ecient, how do you think the price reaction to this event should be? How would your answer change if the market is strong eficient?

Reference no: EM131166501

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