From the perspective of the theory of efficient markets, explain why it may be difficult for professional portfolio managers who have an exceptional year to continuously outperform the market average.
What will be an ideal response?
A professional money manager who has an exceptional year will attract a lot of attention and money. The attention may be in the form of other professional managers who will copy the actions of the successful manager. The additional money will require the manager to put these funds to use which, due to the law of diminishing marginal returns, will also make it more difficult to duplicate the return.
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Long-term growth in production in an economy can be partially explained by: a. improvements in the rules of the game that facilitate production and exchange. b. the peaks and troughs of the business cycle or economic fluctuations
c. trade surpluses that lead to accumulations of precious metals. d. federal government budget deficits. e. a gradual but consistent increase in the price level.
Many people have heard that the stock market rises when a team from the National Football Conference (NFC) wins the Super Bowl, and falls when a team from the American Football Conference (AFC) is victorious. If you conclude that there is a causal relationship between the outcome of the Super Bowl and stock prices, you probably are: a. confusing correlation with causation
b. committing the fallacy of composition. c. confusing the direction of causality, since everyone knows that stock prices determine which team wins the Super Bowl. d. none of the above