According to the efficient market hypothesis, which of the following statements is true?

1. High-beta stocks are consistently overpriced.

2. Low-beta stocks are consistently overpriced.

3. Positive alphas on stocks will quickly disappear.

4. Negative alpha stocks consistently yield low returns for arbitrageurs.

Question

Nash Armstrong

Business

12 November, 15:23

According to the efficient market hypothesis, which of the following statements is true?

1. High-beta stocks are consistently overpriced.

2. Low-beta stocks are consistently overpriced.

3. Positive alphas on stocks will quickly disappear.

4. Negative alpha stocks consistently yield low returns for arbitrageurs.

+3

Answers (1)

Know the Answer?

Ann Mcfarland · Answer 1

Positive alphas on stocks will quickly disappear.

Explanation:

This is a theory that tells or show that stock prices affect or reflect in availability of the stock in the market. Stocks producing abnormal excess returns will increase in price to eliminate the positive alpha.

While in the case above, it is said that positive alphas on stock will quickly disappear.

Markets are efficient in determining the prices of financial securities.

Investors tend to be rational.

In the other hand, if the efficient market hypothesis lies or is not seen to be the truth, a larger role for regulators to intervene in stock bubbles to prevent a boom and bust is enabled.