CFA Practice Question

CFA Practice Question

Which is not true in fundamental analysis and efficient market hypothesis?
A. Examination of the extrinsic factors that value stocks will lead to a buy or sell decision.
B. The efficient market hypothesis agrees with the value of fundamental analysis.
C. It is unlikely that examining only past economic events will help an investors outperform a buy-and-hold policy.
Explanation: Fundamental analysis believes there is an intrinsic value of an investment through the study of variables that determine value such as earnings, interest rates and risk variables.

User Contributed Comments 6

User Comment
ahan Why is B true? I think Strong-form EMH is not holding for fundamental analysis.
Sator Examination of extrinsic factors = publicly available information. In EMH, price incorporates istantaneously all the public/insider info, soas no recommandation could be produced (price is already equal to value).
SDog You have to know the different types of EMH, strong, semi-strong, weak. If you assume weak form, fundamental analysis can agree.
vadklim SDog, good point. Weak EMH "... agrees with the value of fundamental analysis"
lonepine no you're wrong it doesn't matter whether it's weak or strong or whatever, the fact is that semi-strong and strong form price in all material public/non-public information.

thus the point is that the EMH-based prices will agree with fundamentals because it's already priced in
harrybay EMH needs fundamental analysis. If there is no investor doing fundamental analysis then markets are no longer efficient.
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