CFA Practice Question
Which of the following pieces of empirical evidence does not support the semi-strong form EMH?
A. Announcements of accounting changes result in rapid reaction and adjustment of security prices.
B. Stock splits do not result in higher rates of return for stockholders.
C. There is a positive relationship between the BV/MV ratio and future stock returns.
Explanation: The tests of publicly available ratios (i.e. BV/MV and P/E) that can be used to predict the cross-section of expected returns for stocks have provided evidence in conflicting with the semi-strong form EMH.
User Contributed Comments 9
| User | Comment |
|---|---|
| humphrey | actually under-value effect does not contradict semi-strong form EMH, it's only hypothesizing that beta is not the only relevant measure of risk premium, and high book/market ratio might be unrecognized source of systematic risk |
| jayjunk | Humphrey is right! As Fama likes to say, all tests are joint tests of efficiency and the returns model. |
| MFApassed | Semi-Strong Form EMH Anomalies: calendar based, financial ratios, size based, and analyst following. (Analyst Notes Formula Sheet) |
| MaresaJaden | EMH States that you cannot use fundamental analysis to generate consistent abnormal returns. BV/MV would be an example of fundamental analysis. |
| lonepine | fama french factors -> reject semi-strong |
| alexchav | Is it me or second mock exam was much easier? |
| Lambo83 | alexchav I agree |
| ashish100 | ^ damn there goes my confidence boost. back to grinding hard now tho. thanks for the motivation |
| samuemull | It is a bit easier - but I also got a higher percentile, so I still feel good. |