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Suppose that research shows that by buying stocks issued by companies, whose names begin with the...

Question:

Suppose that research shows that by buying stocks issued by companies, whose names begin with the letter G, investors can earn above-normal returns in even-numbered years. What is the answer, and why?

a. From the perspective of the efficient markets hypothesis, this is further evidence that the hypothesis is correct.

b. This would be considered evidence that the hypothesis is incorrect.

c. Investors must have insider information on these companies.

d. Purchasers of these stocks must have been speculators.

Stocks:

The stock is defined as the certificate of ownership in the corporation. The stock is also termed as equity or shares. The holder of the equity or share is known as the equity holder or the shareholder of the corporation.

Answer and Explanation:

The correct answer is option d. Purchasers of these stocks must have been speculators.

The purchaser of such stocks would be a speculator because no efficient market hypothesis states that the corporation would issue the stock to the investors whose name starts with G. This act is against the efficient market hypothesis as according to the efficient market hypothesis the stocks or shares are always traded on its fair value in different stock exchanges.


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Stocks & Pillory: Definition & Punishment

from NY Regents Exam - US History and Government: Tutoring Solution

Chapter 1 / Lesson 18
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