2. Efficient Market Hypothesis
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a. Discuss three forms of market efficiency. Pick one of them and discuss what kind of evidence
in the markets would reject that form of market efficiency.
1. market prices reflect all available, relevant information
2. If there were anyway to beat the market, investors
would so therefore it is efficient
3. The market goes accordingly with how
companies are performing, therefore it is efficient.
Using number 1, the market is often skewed with personal
beliefs with good and bad news which often skew the price of
stock. Ex. Elon musk
5. If markets are efficient, then what is the role of a financial advisor?
If markets are efficient it is the financial advisor
job to make sure the client is properly diversified
in the market, so they can receive the same gains
while also keeping risk at a minimal client
objective
c. Provide an example of following concepts: material non-public information; illegal insider
trading; and legal insider trading.
Material non-public information = Ex. The head of
Microsoft accidentally leaks earnings report early to a friend
of his friends before it goes public
Illegal insider trading = receiving news or a tip that
affect stock performance, then acting on the news
person gain in the market.
Legal insider trading = CEO of company sees that the
company is doing well and decides to buy more
Why is it legal?