Market efficiency

CFA LEVEL IEQUITY INVESTMENTSMarket EfficiencyMarket EfficiencyQuestion 1.Which of the following statements is most accurate in an efficientmarket?A.Active strategies will lead to excess risk-adjusted portfolio returns.B.Securities market prices fully reflect their fundamental values.C.Securities market prices respond over time to changes in economicinformation.1Market EfficiencySolution:B is correct.In an efficient market, market participants will process available information,and those with opposite views will trade among each other until securitiesmarket prices fully reflect their fundamental values. An efficient market isthus a market in which asset prices reflect all past and present information.A is incorrect because in an efficient market, securities market pricesreflect their fundamental values, so opportunities for active strategies toachieve excess risk adjusted returns may not exist.C is incorrect because an efficient market is a market in which asset pricesreflect information quickly, not over time.2Market EfficiencyQuestion 2.An investor analyzes the stock market of a specific country anddiscovers that the stock prices are very slow to reflect newinformation. The investor can best profit from this situation using a(n) fund.B.passive fund.C.low cost approach.3Market EfficiencySolution:A is correct.In an efficient market, asset prices reflect new information quickly. Conversely, an ineffic … Purchase document to see full attachment

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