Question

1. If the market is semi-strong efficient, which of the following trade strategy would work to generate alpha?

1. Through fundamental analysis of public information, you find the future performance of the company is likely to be strong, which is also consistent with market consensus. You decide to purchase the company.
2. You find that during normal times, technology stocks tend to out-perform retail stocks, so you decide to purchase technology stocks and short retail stocks.
3. You find out that a company announced good news 3 days ago; you decide to purchase the stock because you believe stock price is going to keep rising
4. A & B
5. None of them

2. Your investment has a 40% chance of earning a 15% rate of return, a 50% chance of earning a 10% rate of return and a 10% chance of losing $3. What is the standard deviation of this investment?

1. 5.14%
2. 7.59%
3. 9.29%
4. 8.43%

Answer 1

Efficient market hypothesis:

For meaning and definition look at the notes attached.

They are 3 levels of Market efficiency:
1. Strong efficiency: Insider information, fundamental analysis and technical analysis are unless in such a market.
2. Semi- Strong: fundamental analysis and technical analysis are unless in such a market.
3. Weak: technical analysis is unless in such a market.  

In practical life: it's very difficult to obtain strong efficiency markets.

The correct option is E. None of them.

As option A. Fundamental Analysis
B. Technical Analysis.
C. The information effect is already taken into consideration of stock price.
D. Fundamental Analysis and Technical Analysis.

We can only benefit from Insider Information in Semi- Strong efficiency markets.