MPRS22 wrote:
Hi
AndrewNI have a question on this type of questions. In my head I was supposed to find an answer that fit both information points
The Managers say he was able to beat the market and the economic theory says you can't. Hence, that's why I chose B. Instead, we apparently had to treat the two as opposite theories. Is this latter always the case, or sometimes should we find a way to include both. If this is the case how can we tell?
Thanks
Hello,
MPRS22. By chance, you get to be lucky number 2000, the recipient of my 2000th post. I hope the next 1000 will prove my best yet. To be honest, whenever you get a definition-based question, you need to stick strictly to that definition to show how
correct it may be.
QUESTION: if the efficient capital markets hypothesis is correct, then it should be expected that_____________
DEFINITION: the "efficient capital markets hypothesis"... proposes that stock prices accurately reflect the value of the underlying investments, incorporating all information available to the public.
CONCLUSION: stock prices accurately reflect the value of the underlying investments, based on public information
Such thinking leads straight to (D) as the answer that cannot be disputed:
Quote:
D) given public information alone, companies cannot reliably be labeled undervalued or overvalued relative to to the general stock market
That should put this concern to rest. Now, you used the word
always in your post. I rarely use such language. A different question might take a slightly different spin, but in that case, I would suggest that, once again, you read the question carefully and look to follow the linear logic of the passage.
To be honest, the question reminded me of
another post I wrote at the end of last year in response to a definition-based RC question. I offer quite similar advice there, if you feel so inclined.
I hope you find this response helpful. Thank you for thinking to ask.
- Andrew