Question

Which of the following contradicts the proposition that the stock market is weakly efficient?A. Over 25% of mutual funds outperform the market on average.B. Insiders earn abnormal trading profits.C. Every January, the stock market earns above-normal returns.D. Applications of technical trading rules fail to earn abnormal returns.

Answer 1

Answer:

The correct answer is letter "C": Every January, the stock market earns above-normal returns.

Explanation:

Inside the Efficient Market Hypothesis or EMH, we can find the term "weak from efficiency" that states past price action do not influence the current stock price or it is not useful in order to predict future price movements. According to the same concept, the use of technical analysis or the suggestions of financial advisers is useless.

In that sense, option letter "C" indicates that every January the stock market earns an above-normal return, which clearly reflects that there is a repeated pattern in the stocks affecting their price during that specific month, something impossible to take place according to what "weak from efficiency" establishes.