According to the critics of stock price maximisation, “A practical problem with stock price as a performance measure is that it depends on a whole array of factors outside the company’s control. One can never be certain whether an increase in stock price reflects improving company performance or other environmental factors” (Higgins, Koski & Mitton, 2022, p. 60) In not more than 200 words, discuss the above quotation using GameStop Debacle

According to the critics of stock price maximisation, “A practical problem with stock price as a performance measure is that it depends on a whole array of factors outside the company’s control. One can never be certain whether an increase in stock price reflects improving company performance or other environmental factors” (Higgins, Koski & Mitton, 2022, p. 60) In not more than 200 words, discuss the above quotation using GameStop Debacle

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 10MC: You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand...

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According to the critics of stock price maximisation, “A practical problem with stock price as a performance measure is that it depends on a whole array of factors outside the company’s control. One can never be certain whether an increase in stock price reflects improving company performance or other environmental factors” (Higgins, Koski & Mitton, 2022, p. 60) In not more than 200 words, discuss the above quotation using GameStop Debacle as a case study.
Which of the following statements about the Efficient Market Hypothesis (EMH) is incorrect? Group of answer choices a)If the market is strong-form efficient, investors can not earn abnormal returns using inside information. b) If the investment in small firms earns a positive abnormal return, the stock market is not semi-strong form efficient. c) If a market is efficient, investors tend to follow a passive investment strategy. d) If the future stock price change depends on its history, the market is not weak-form efficient. e) If a market is weak-form efficient, fundamental analysis can not earn a positive abnormal return.
The small firm effect refers to the observed tendency for stock prices to behave in a manner that is contrary to normal expectations. Describe this effect and discuss whether it represents sufficient information to conclude that the stock market does not operate efficiently. In formulating your response, consider: (a) what it means for the stock market to be inefficient, and (b) what role the measurement of risk plays in your conclusions about each effect.
Which of the following is FALSE about the semi-strong form of market efficiency? All publicly available information is reflected in stock prices Fundamental analysis can help investors to outperform the market Technical analysis cannot be used to outperform the market Only private information can help investors to outperform the market
The efficient markets hypothesis identifies three forms of market efficiency. (a) You observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency? (b) If the weak form of the efficient market hypothesis is valid, must the strong form also hold? Conversely, does strong form efficiency imply weak form efficiency? (c) Stock XYZ, which traded for several months at a price of K72, and then declines to K65. if the stock eventually begins to increase in price, K72 is considered a resistance level because investors who bought originally at K72 will be eager to sell their shares as soon as they can break even on their investment. If everyone in the market believes in resistance levels, why do these beliefs not become self-fulfilling prophecies?
The weak form of the efficient market hypothesis implies that: CHOOSE ONE A. Investors can achieve abnormal returns, on average, using technical analysis, after adjusting for transaction costs and taxes. B. Insiders, such as specialists and corporate board members, cannot achieve abnormal returns on average. C. No one can achieve abnormal returns using market information. D. NONE OF THE ABOVE
“When the stock market declines the net worth of companies decreases, causing the problem of asymmetric information to decrease as well.” Is this statement true, false, or uncertain? Explain your answer.
Which one of the following statements is NOT CORRECT? o Investors may interpret a stock repurchase program as a signal that the firm's managers believe the stock is undervalued or alternatively, as a signal that the firm does not have many good investment opportunities. O If a firm follows the residual dividend model then a sudden increase in the number of profitable projects would be likely to lead to a reduction of the firm's dividend payout ratio. Gordon and Lintner's "bird-in-the-hand" fallacy suggests that investors prefer dividends to capital gains because dividends are more certain than capital gains. O One of the advantages to dividend reinvestment plans or DRIPS is that stockholders pay no income tax on dividends if the dividends are automatically reinvested into the stocks of the paying companies.
Which of the following is NOT correct with respect to the Efficient Market Hypothesis? If markets are semi-strong form efficient, then fundamental analysts would not be able to earn abnormally good returns, after considering the risk they assume. O Semi-strong form efficiency says that if a company announces a labor strike, the stock price very quickly adjusts downward. Evidence suggests that markets are NOT strong form efficient, since insiders could make abnormally good returns trading on private information. However, that is illegal. () Semi-strong form efficiency says that when Stryker makes an earning announcement, the stock price quickly reflects the new information. )Weak form efficiency says that technical analysts who study charts of stock prices and volumes can regularly make abnormally good returns, after considering the risk the assume. Page 24 of 30
of the following is FALSE regarding the Efficient Market Hypothesis? In general, the Efficient Market Hypothesis says that stock prices very quickly reflect information that is available. O If financial markets are weak form efficient, then technical analysts cannot make abnormally good returns, on average, by studying charts of past stock prices and trading volumes. If financial markets are strong form efficient, then insiders with private information about a company would not be able to make abnormally good returns by trading on that information. The Efficient Market Hypothesis implies that skilled fundamental analysts can make abnormally good returns by studying a firm's financial statements, suppliers, customers, and the economic conditions. Evidence suggests that insiders who trade on private information can make abnormally good returns, but it's illegal to do so.
You buy a stock from the capital market. If the capital market is semi-strong efficient, which of the following statements is NOT correct? a. You cannot earn any abnormal returns above the required return by trading on public information. b. Past stock prices can be used to predict future stock prices. c. The technical analysis of publicly available information will not lead to any abnormal returns. d. The stock is fairly priced. e. Stock prices reflect all publicly available information.
Which of the following statements is most correct? Semi-strong form market efficiency implies that all private and public information is rapidly incorporated into stock prices Market efficiency implies that all stocks should have the same expected return Weak form market efficiency implies that recent trends in stock prices would be of no use in selecting stocks (i.e. technical analysis is a waste of time)