6.1  In your view, would you expect professional investors to outperform the market? Why, or why not? 

 

6.2  Why do you think this aspect of market performance might be worth studying? 

 

6.3  Now look at the text. Why did Malkiel examine professional investor performance?

  

6.4  What does he find about professional investor performance – do they beat the market? 

 

 6.5 Critical reading: what evidence is given for 6.4? Is it convincing?

  

6.6  Discuss what implications these findings have for the EMH. Be ready to explain your answer to the class. 

 

Very strong ---- strong ---- medium ---- weak ---- very weak

5.2  Which words and phrases helped you to answer 5.1? 
5.3  In paragraph 4, decide how strong the writer believes the evidence is for frequent patterns in the stock market.

 

4.1  Look at the section titled “Short-Term Momentum, Including Underreaction to New Information” (p. 61). Underline ideas in favour of the EMH, and put a dotted…..line under arguments against itfor the first paragraph only of this section.
4.2  In the first sentence of the first main paragraph of the section, how does the writer show that he is discussing research which supports the EMH? 
4.3  Now look in the first three paragraphs of the section for other language which shows support for or challenges against the EMH.
4.4  How does the writer signpost their move from arguments for the EMH to those against it?  Look at the first three paragraphs of this section for examples. 

·         Reference to famous research (Fama 1970; Malkiel, 1973) 1, 3 

·         Explanation of key concept 1+ 2

·         Counter-claim 4

·         Outline of the issues under discussion 5

·         Aims of the paper 5

·         Findings  (rebuts counter-claim) 5

·         Structure (inferred). 5

·         Definition / clarification of terms. 1,2, 6

·         Clarification of the writer’s position on the issue 7

 

2.3 What is / are the main idea(s) of each of the introductory paragraphs? Make a note for each paragraph, using notes rather than complete sentences.
Para 1: Basics of EMH (Fama 1970) = prices quickly reflect all publicly available info so analysis à exceptional returns = imposs. Hypothesis generally accepted at that time.
Para 2: “Random walk” explained: future prices are unpredictable and independent of current prices
 |  Para 3: Malkiel 1973: unpredictability àpassive index investment funds = as effective as active investment funds  
 | Para 4: New challenges to EMH: psych / behavioural = some predictability in prices + possibility of exceptional returns exist?
 | Para 5 Paper aims: examine psych / bhvrl / event study challenges ie predictability and non-efficiency using market stats. Rejects these challenges: EMH as in para 1 holds | 
| Para 6 Clarifies “efficiency” = efficient markets do not allow exceptional returns without above average risk (the idea of level of risk is new to students) | 
|  Para 7 Accepts that pricing mistakes happen and psych factors do exist but in a random, unpredictable way, making systematic and exceptional returns impossible. EMH holds. | 
| 
2.4  What is the writer’s own opinion of the EMH?

2.5  The writer defines two key terms in the introduction. 

a) Find the terms & add para #, too

b) Identify each definition and the grammar used to present the definition.
c) Paraphrase each definition, thinking carefully about which word / expressions cannot be paraphrased.