MAF603_EMH Tutorial 1

Question 1
State whether the following statements is true or false.

i. Conservatism refer to investors are quickly adjusting their beliefs to new

information. It resulted in quick respond of security towards earnings
surprises.

ii. A research study in a semi strong form efficiency indicated that the speed and
accuracy of share price movement of stocks traded in a stock market are due
to reactions on the arrival of new information.

iii. In efficient market, the concept of “dart throwing” is useful where investor can
throw the dart to select the stocks.

iv. When the prices of stock continuously change, these fluctuations indicate that
market is inefficient.

v. The market can still be efficient assuming that the actions of those irrationally
optimistic are offset by that of those irrationally pessimistic.

Question 5_ Jan 2018

d. Briefly explain one way to test the semi strong form efficiency of the Efficient Market
Hypothesis.
(3 marks)
 
e. A pharmaceutical company recently announced new vaccine for the treatment of dengue
viruses on the television. Based on the information released:
 
i. Discuss how should the stock prices of the company react to this information, if
no additional information is released, in an efficient market and in an inefficient
market.
(5 marks)
 
ii. By investing based on the information above, it is argued that you would not
be able to make any abnormal profit. Briefly explain what kind of market
efficiency seems to be evidenced. (Assume that market is efficient).
(2 marks)