Ch. 8 Assignment 11. Which of the following most appears to contradict theproposition that the stock market is weakly efficient?Explain. (LO 8-3)a. Over 25% of mutual funds outperform the...

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Ch. 8 Assignment 11. Which of the following most appears to contradict the proposition that the stock market is weakly efficient? Explain. (LO 8-3) a. Over 25% of mutual funds outperform the market on average. b. Insiders earn abnormal trading profits. c. Every January, the stock market earns abnormal returns. 13. Which of the following observations would provide evidence against the semistrong form of the efficient market theory? Explain. (LO 8-3) a. Mutual fund managers do not on average make superior returns. b. You cannot make superior profits by buying (or selling) stocks after the announcement of an abnormal rise in dividends. c. Low P/E stocks tend to have positive abnormal returns. d. In any year approximately 50% of pension funds outperform the market. 21. You know that firm XYZ is very poorly run. On a scale of 1 (worst) to 10 (best), you would give it a score of 3. The market consensus evaluation is that the management score is only 2. Should you buy or sell the stock? (LO 8-4) 22. Good News, Inc., just announced an increase in its annual earnings, yet its stock price fell. Is there a rational explanation for this phenomenon? (LO 8-1) 24. Examine the accompanying figure, which presents cumulative abnormal returns both before and after dates on which insiders buy or sell shares in their firms. How do you interpret this figure? What are we to make of the pattern of CARs before and after the event date? (LO 8-3) Source: Nejat H. Seyhun, “Insiders, Profits, Costs of Trading and Market Efficiency,” Journal of Financial Economics 16 pp. 189–21 6. You are a portfolio manager meeting a client. During the conversation that follows your formal review of her account, your client asks the following question: (LO 8-2) My grandson, who is studying investments, tells me that one of the best ways to make money in the stock market is to buy the stocks of small-capitalization firms late in December and to sell the stocks one month later. What is he talking about? a. Identify the apparent market anomalies that would justify the proposed strategy. b. Explain why you believe such a strategy might or might not work in the future. 9. Your investment client asks for information concerning the benefits of active portfolio management. She is particularly interested in the question of whether active managers can be expected to consistently exploit inefficiencies in the capital markets to produce above-average returns without assuming higher risk. The semistrong form of the efficient market hypothesis asserts that all publicly available information is rapidly and correctly reflected in securities prices. This implies that investors cannot expect to derive above-average profits from purchases made after information has become public because security prices already reflect the information's full effects. (LO 8-2) a. Identify and explain two examples of empirical evidence that tend to support the EMH implication stated above. b. Identify and explain two examples of empirical evidence that tend to refute the EMH implication stated above. c. Discuss reasons why an investor might choose not to index even if the markets were, in fact, semistrong-form efficient.