Question1.15 Proponents of the Efficient Market Hypothesis typically advocate ________: researching individual stocks extensively before we invest in them. an active trading strategy. investing in an index fund and a passive investment strategy. security selection over asset allocation. an active trading strategy and investing in an index fund. ResetMaximum marks: 2.5 Flag question undefined

Question

BlackTom AI · Accepted Answer

Efficient Market Hypothesis (EMH) states that asset prices fully reflect all available information (in its semi-strong form) so that consistently achieving risk-adjusted excess returns by analyzing public information is unlikely. This core idea drives the practical investment recommendation.

1. Relevant knowledge points and concepts
- EMH forms: weak (past price information), semi-strong (public information), strong (all information).  
- Implication: active security selection or frequent trading cannot reliably beat the market after transaction costs and fees.  
- Passive investing (e.g., index funds) aims to match market returns at low cost rather than beat them.

2. Step-by-step reasoning
- If markets are efficient, new public information is quickly incorporated into prices, so researching individual stocks cannot systematically identify mispriced securities.  
- Active trading incurs higher fees, taxes, and transaction costs; in an efficient market these costs reduce net returns, making active strategies inferior on average.  
- Index funds provide broad market exposure at low cost and thus capture market returns without the higher costs and timing risk of active management.  
- Therefore, proponents of EMH favor passive, low-cost index investing.

3. Calculations
- No numerical calculations are required; the conclusion is derived from theoretical implications of EMH and cost considerations.

4. Why the correct answer is correct
- “Investing in an index fund and a passive investment strategy” directly aligns with EMH’s central implication that trying to outperform the market through stock picking or timing is unlikely, so matching the market cheaply is preferred.

5. Why the other options are incorrect
- Researching individual stocks extensively: contradicts EMH because it assumes exploitable mispricings.  
- An active trading strategy: inconsistent, as EMH implies active trading won’t reliably outperform after costs.  
- Security selection over asset allocation: EMH-focused literature emphasizes asset allocation and market-level exposure rather than picking individual securities.  
- An active trading strategy and investing in an index fund: internally inconsistent—one cannot simultaneously advocate active trading and pure passive indexing.

6. Conclusion
The correct answer is “investing in an index fund and a passive investment strategy,” which matches the provided answer.

类似问题

The ASX uses continuous markets to determine opening and closing prices.[Fill in the blank]

Hedge funds are often referred as noise traders because of their aggressive investment strategies.[Fill in the blank]

Which of the followings is (are) the example(s) of the financial market(s)?

Regarding financial markets, select the correct alternative:

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单