Question6 Which of the following phenomena would be a violation of the efficient market hypothesis (EMH)? I. Nearly half of all professionally managed mutual funds are able to outperform the S&P 500 in a typical year.II. Money managers that outperform the market (on a risk-adjusted basis) in one year are likely to outperform in the following year.III. Stock prices of companies that announce increased earnings in January tend to outperform the market in February.IV. Stocks that perform well in one week perform poorly in the following week. Select one alternative: A. I and II only. B. I, II, and IV only. C. II, III, and IV only. D. II and III only. ResetMaximum marks: 2 Flag question undefined单项选择题
A
A. I and II only.
B
B. I, II, and IV only.
C
C. II, III, and IV only.
D
D. II and III only.

Question

Question6 Which of the following phenomena would be a violation of the efficient market hypothesis (EMH)? I. Nearly half of all professionally managed mutual funds are able to outperform the S&P 500 in a typical year.II. Money managers that outperform the market (on a risk-adjusted basis) in one year are likely to outperform in the following year.III. Stock prices of companies that announce increased earnings in January tend to outperform the market in February.IV. Stocks that perform well in one week perform poorly in the following week. Select one alternative: A. I and II only. B. I, II, and IV only. C. II, III, and IV only. D. II and III only. ResetMaximum marks: 2 Flag question undefined单项选择题

A

A. I and II only.

B

B. I, II, and IV only.

C

C. II, III, and IV only.

D

D. II and III only.

BlackTom AI · Accepted Answer

In an efficient market, past prices or publicly available information should not allow investors to earn consistent abnormal (risk-adjusted) returns; any predictable pattern of outperformance implies an EMH violation. Relevant knowledge: EMH comes in weak (past prices contain no predictive power), semi-strong (all public information is already reflected in prices), and strong forms (even private information is reflected).

Step-by-step evaluation of each statement:

I. Nearly half of all professionally managed mutual funds are able to outperform the S&P 500 in a typical year.
- Reasoning: Randomness implies that, in any given year, a sizable fraction of funds can outperform a benchmark by luck. EMH predicts no persistent edge for most active managers after fees. The mere fact that "nearly half" outperform in a single year is not evidence of predictable abnormal returns and therefore is not necessarily a violation. Thus I is not a violation.

II. Money managers that outperform the market (on a risk-adjusted basis) in one year are likely to outperform in the following year.
- Reasoning: This states persistence of abnormal returns; if true, it implies predictability of future excess returns based on past manager performance. That contradicts EMH (weak/semi-strong), so II is a violation.

III. Stock prices of companies that announce increased earnings in January tend to outperform the market in February.
- Reasoning: Earnings announcements are public information. Under semi-strong EMH prices should adjust immediately; a subsequent outperformance in February indicates delayed adjustment or momentum from public news — a violation.

IV. Stocks that perform well in one week perform poorly in the following week.
- Reasoning: This weekly reversal implies past returns predict future returns (negative autocorrelation). That contradicts weak-form EMH, so IV is a violation.