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richer

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tT
发表于 2011-7-13 16:30 | 只看该作者

EMH -confused semi-strong and strong

hypothesis, efficient, developed, companies, investment
Question

An Analyst with ABC investment has developed a stock selection model based on earnings announcement made by companies with high P/E stock. the Model predicts that investing in companies with P/E ratio twice that of their industry average that make positive earnings announcements will generate significant excess return . If the analyst has consistently make superior risk- adjusted return on this strategy , Which form of the efficient market hypothesis has been violated?

A, weak form only
B, semi-strong and weak form only
C, Strong, semi-strong and weak forms

In my thought, if it breach weak form of EMH it will also breach semi-strong and strong , so i go with C but it is incorrect answer

what do you think abt it ?


many thanks
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Finalnub

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2#
发表于 2011-7-13 16:30 | 只看该作者
Penny's right here. Weak is the lowest form of efficiency, Semi-strong then incorporates weak, and strong incorporates weak and semi strong.

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Flok

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3#
发表于 2011-7-13 16:30 | 只看该作者
andyrocks Wrote:
-------------------------------------------------------
> Penny's right here. Weak is the lowest form of
> efficiency, Semi-strong then incorporates weak,
> and strong incorporates weak and semi strong.


Thats fine but if semi strong is violated, is it essential that weak will be violated too? I don't think so. Here using P/E (fundamental analysis) you can get consistent abnormal returns so it violated semi strong. It has to violate strong too then right, because strong means abnormal returns cannot be earned using any analysis or data

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dotamasta

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4#
发表于 2011-7-13 16:30 | 只看该作者
morebeans Wrote:
-------------------------------------------------------
> You guys are getting too smart for your own good.
> You're right - if semi-strong has been
> violated than by definition markets can't be
> strong-form efficient. But I guess you have to
> think like a question writer on this one. The
> difference between strong and semi-strong is that
> with strong markets, even having material
> non-public information doesn't give you an
> advantage, right? So they want you to identify
> that P/E ratios are not material non-public
> information, so you're supposed to put strong form
> out of your mind.
>
> Hopefully there won't be a question like this on
> the real exam.


thanks for the post morebeans(?) i was getting a bit anxious with this thread as it made me doubt more and more my basis for choosing B to start with - which i must now admit is the wrong choice whatever the question-writer is thinking!

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disiz64

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5#
发表于 2011-7-13 16:30 | 只看该作者
sorry, just still dont get it... Why has the weak-form been violated? Weak-Form states that you cant earn excess return with Technical Analysis, but you can earn excess return by using fundamental analysis. So it only breaches the semi-strong form in my mind...

can someone try and bring some light into the dark for me? Thx :-)

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farrukhsadiq

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6#
发表于 2011-7-13 16:30 | 只看该作者
Flok Wrote:
-------------------------------------------------------
> sorry, just still dont get it... Why has the
> weak-form been violated? Weak-Form states that you
> cant earn excess return with Technical Analysis,
> but you can earn excess return by using
> fundamental analysis. So it only breaches the
> semi-strong form in my mind...
>
> can someone try and bring some light into the dark
> for me? Thx :-)


Semi-Strong includes weak form, so if semi-strong is violated, automatically weak form is violated.

Weak - Cannot earn using technical
Semi-Strong - cannot earn using technical and fundamental
Strong - cannot earn using technical, fundamental, and material non public.

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ramzes

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7#
发表于 2011-7-13 16:30 | 只看该作者
it is question 89 exam 2 morning section in Practical 2 Schweser

Total agree with Penny , just let it go good luck you guy on Saturday

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