- CFA Exams
- CFA Level I Exam
- Study Session 12. Equity Investments (1)
- Reading 38. Market Efficiency
- Subject 3. Market Pricing Anomalies
CFA Practice Question
Suppose that after conducting an analysis of past stock prices, you came up with the following observations. Which would appear to contradict the weak form of the efficient market hypothesis?
A. The average return is significantly higher than the risk-free rate of return.
B. The correlation between the return one week and the return the next week is -0.4.
C. One could have made higher-than-average capital gains by holding shares with low dividend yields.
Explanation: In the weak form, asset prices fully reflect all market data, which refers to all past price and trading volume information.
User Contributed Comments 3
| User | Comment |
|---|---|
| rainbowsoda | Weak form EMH suppose that security returns should be independent of one another. |
| krisscfa | Researchers found that the correlations were typically 'not statistically significant', although some recent studies have indicated that the correlation is stronger for portfolios of small stocks.... 'not statistically significant' so Correlation is ZERO |
| maria15 | Thanks krisscfa |