Week 11 - Efficient Market Paradox

Question 1

Large number of investors are trying to earn abnormal profits (beat the market) by a variety of means:

Answer 1

• guessing
• technical analysis
• fundamental analysis - studying any new available information

Question 2

How do we know investors don’t believe in market efficiency?

Answer 2

They wouldn’t bother otherwise

Question 3

What happens because of these investors and their actions?

Answer 3

It is only because of these investors that any inefficiencies that do exist are rapidly closed and the market remains efficient. The activity of these traders ensures that prices are in equilibrium

Question 4

What is the first thing you should remember when thinking about beating the market?

Answer 4

You only hear from winners, not losers

Question 5

What is the second thing you should remember when thinking about beating the market?

Answer 5

Anyone claiming to beat the market should be asked
- why are you telling me?
- why aren’t you super rich?