Which version of the efficient market hypothesis (weak, semi-strong, or strong-form) focuses on the most inclusive set of information?
The correct answer is ‘strong-form’.
According to the EMH or efficient market hypothesis, the stock prices reflect all information therefore they are never undervalued or overvalued. Though the hypothesis is based on the theory that the market is generally efficient, this theory is offered in three different versions i.e. weak, semi-strong and strong-form.
Strong-form efficiency includes all the information i.e. historical, public and private. Therefore it offers the most inclusive information.
Are the following true or false? Explain.
a. Stocks with a beta of zero offer an expected rate of return of zero.
b. The CAPM implies that investors require a higher return to hold highly volatile securities.
c. You can construct a portfolio with beta of .75 by investing .75 of the investment budget in T-bills and the remainder in the market portfolio.
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