# Tag Info

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It's not unusual - in many real-world subjects - for there to be questions for which the right answer at one level of learning, under one teaching framework, is the wrong answer in a different context. This is one such question. It will depend as much on what the teaching framework's objectives are, and what its position is within normative economics. As ...

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The EMH applies to assets, not just stocks, and its implications are more relevant for investors who own part of the market - not the entire thing. This is important, because it's the difference between looking at a closed system versus an open one, and between populations versus samples. People make money all the time by cycling between stocks, bonds, ...

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Efficient market hypothesis does not in itself predict that stock market returns will equalize among different stock markets so it should not really be part of the question (efficient market hypothesis only refers to informational efficiency of markets). Rather this is something that would be predicted by trade/international macro models that predict factor ...

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Your figures reports ex-post (say end of year) returns on capital investments. Ex-ante (beginning of the year, or before the investment) these returns are random and unknown, and there is a trade-off between return and risk. If investor $i$ is investing rationally her assets in firm $j$ instead of $k$, according her specific risk aversion and information set ...

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The efficient market hypothesis does not require everyone being omniscient. It works through the supply/demand and price mechanism. For example, imagine that you have private information that a company X is doing bad (without being a manager or other person banned from insider trading). If company X is doing bad then sooner or later it’s stock price will ...

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If you want some simple model of stock prices consistent with efficient market hypothesis it would be random walk: $$p_{t+1}= a+ p_t +\epsilon_t$$ You don’t even need to model cycles there explicitly just due to random chance it will exhibit some ‘cyclical-like’ behavior. Although, I know it’s not actual cyclical behavior because it can diverge it’s ...

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