Exam 8: The Efficient Market Hypothesis, the Mean Variance Portfolio Theory, and the Random Walk Model

The Efficient Markets Hypothesis (EMH) states that a stock's current price correctly predicts the underlying company's future results.

The covariance of two risky assets measures how two returns of two assets move in relation to each other. What happens to the relation between the two returns if the covariance is negative?

Tom has decided to invest in different assets simultaneously in order to reduce risks. What is this strategy called?

In the random walk hypothesis, rates of return must meet which of the following conditions?

According to the Efficient Market Hypothesis (EMH), a market is said to be efficient if prices in that market reflect all available information. Is this following statement true or false?"It is possible to consistently outperform the market by taking advantage of all the information that the market already knows"

A portfolio is a collection of investments made by individuals or institutions. The market portfolio then is: