Answered

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State if each of the following statements is true or false. Justify your answers. The efficient-market hypothesis assumes that a. There are no taxes. b. There is perfect foresight. c. Successive price changes are independent. d. Investors are irrational. e. There are no transaction costs. f. Forecasts are unbiased.

Sagot :

Parrain

Answer:

a. FALSE

The Efficient Market Hypothesis has no assumption that limits the role of taxes in the model so this statement is false.

b. FALSE

The model does believe in the notion of imperfect foresight because the model follows the assumption that it is not possible to estimate stock price with absolute accuracy.

c. TRUE

The model does indeed believe this because it assumes that the price on a day is independent of the price of the same stock on another day.

d. FALSE

It it believed that investors are rational.

e. FALSE

Transaction costs are catered for in the model so this statement is incorrect.

f. TRUE

As much as possible, the model does not allow for the creation of biased forecasts as it strives for no bias in its forecasts.

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