Question 1
Under the efficient markets hypothesis, the stock market is made efficient by
◦ high frequency traders.
◦ electronic exchanges.
◦ competition amongst investors.
◦ large, institutional traders (i.e., mutual funds).
◦ fiber optic and microwave communications technology.
Question 2
What advice should investors heed if markets are efficient?
◦ You can earn abnormally large returns by frequently buying and selling whenever you obtain new information.
◦ The best-informed traders always beat the market.
◦ Mutual funds run by expert managers consistently outperform index funds.
◦ Random stock picks will perform as well as a series of hot stock tips over long periods of time.
◦ Fundamental analysis is superior to technical analysis.