According to the efficient markets hypothesis, changes in stock prices are impossible to predict from public information. excessive diversification can reduce an investor's expected portfolio returns. the stock market moves based on the changing animal spirits of investors. actively managed mutual funds should give higher returns than index funds.

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Business

Kaitlyn Wilcox

12 September, 12:42

According to the efficient markets hypothesis, changes in stock prices are impossible to predict from public information. excessive diversification can reduce an investor's expected portfolio returns. the stock market moves based on the changing animal spirits of investors. actively managed mutual funds should give higher returns than index funds.

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Answers (1)

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Lilian Klein · Answer 1

Changes in stock prices are impossible to predict from public information.

Explanation:

Efficient market hypothesis states that in an efficient market asset prices tend to reflect all available information. As new information comes to light asset prices adjust accordingly.

Three forms of EMH exist weak, strong, and semi-strong.

The changes in asset price based on all bailable information is unpredictable, so it is impossible to outperform the market by expert selection of stock or market timing.

The only way to get higher returns is to get riskier investments as one cannot consistently predict performance of assets.