- CFA Exams
- 2021 CFA Level I Exam
- Study Session 12. Equity Investments (1)
- Reading 38. Market Efficiency
- Subject 2. Forms of Market Efficiency
CFA Practice Question
Evidence supporting the use of fundamental analysis as a way to earn above-average risk-adjusted returns includes ______.
B. the continued widespread use of fundamental analysis as a forecasting tool
C. several balance sheet-based indicators that continue to have forecasting ability
D. studies documenting very weak independence in stock returns
A. the fact that private money managers using fundamental analysis earn returns superior to those who do not
B. the continued widespread use of fundamental analysis as a forecasting tool
C. several balance sheet-based indicators that continue to have forecasting ability
D. studies documenting very weak independence in stock returns
Correct Answer: C
Fundamental analysis is based on the use of public information. Tests using P/E ratios, market-to-book ratios, etc. appear to have predictive ability. Tests looking at professional money managers indicate that they do not earn excess risk-adjusted returns. Widespread use of fundamental analysis is not evidence of it adding value. Statistical independence has nothing to do with fundamental analysis.
User Contributed Comments 1
User | Comment |
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kalps | Fundamental analysis use Balance sheet ratios such as P/E market/bokk value..... to earn above average risk adjusted returns |