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Portfolios 502: The Efficient Market Theory

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1.
What findings threw the efficient market theory into question?
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That stocks that are unpopular tend to outperform. Fama and French found that buying stocks that have performed poorly during the past few years led to superior returns over the next few years. In other words, a contrarian investment strategy can lead to better results than a strategy of buying popular stocks.
2.
Index mutual funds attempt to beat the market.
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False. Index funds try to match the market.
3.
In an efficient market, _______.
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All of the above. These are all essential if a market is to be efficient.
4.
Which market index tracks 500 of the largest US company stocks?
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Standard and Poor's. Standard and Poor's tracks 500 of the largest US company stocks.
5.
Security prices can be predicted in an efficient market.
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False. According to the theory, only new information can change prices, so predictions will not work.