According to Efficient markets, why are prices “right”?
Answer all the below questions using the slides 1-66 from Lecture 1. We will cover the rest of lecture 1 next week.
Turn in your essay questions on blackboard under coursework (for essay 1) by the beginning of class
1. According to Efficient markets, why are prices “right”?
2. According to Efficient markets, why is there NO free lunch?
3. The two takeaways from efficient markets are the fact that the price is right and that there is no free lunch (that you cannot consistently make abnormal returns in the market). There is a great deal of evidence for no free lunch. Give and explain one example of how there is no free lunch from Lecture 1.
4. According to efficient markets, stock price changes should be distributed normally. Why?
5. Use the limits to arbitrage argument to argue that the price is not right
6. How is the Royal Dutch Shell an example of the limits to arbitrage?
7. Use Herding to explain how prices may not be right in the market.
8. Explain how penalty kicks in soccer are an example of herding.
9. Use Asymmetric Information to explain how prices may not be right in the market.