One implication of the Efficient Market Hypothesis is that, on average, shares o

Question

One implication of the Efficient Market Hypothesis is that, on average, shares of stock in the stock market are priced fairly. That is, the price accurately reflects the circumstances of the company.

Therefore, it is very difficult to pick stocks whose returns will be above the market average return (at that level of risk).

But that is exactly what certain professional money managers of investment funds try to do. They take their clients' money, pooled in an investment fund, and invest it in stocks. These fund managers try to pick stocks which will beat the market average at that level of risk. Most fund managers, however, do NOT beat the market average.

Read the following short article from The Economist:

https://iu.box.com/shared/static/6tlabosh4nk0bo4loz55c7y76w1vlgji.pdf (Links to an external site.)Links to an external site.

The table in that article shows the percentage of funds which failed to beat the market averages. Over a five-year historical period, how many of the 19 fund categories covered in the table succeeded in beating the market more than half the time?

Explanation / Answer

Eight out of 19 categories managed the feat over one year, but that drops to four categories over three years, three over five years and none over 10 years.

ans: 3

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