Question: Describe how you would compute the abnormal rate of return
Describe how you would compute the abnormal rate of return for a stock for a period surrounding an economic event. Give a brief example for a stock with a beta of 1.40.
Answer to relevant QuestionsAssume you want to test the EMH by comparing alternative trading rules to a buy and hold policy. Discuss the three common mistakes that can bias the results against the EMH.Discuss how you would test the strong-form EMH. Why are these tests relevant? Give a brief example.What advice would you give to your superior analysts in terms of the set of firms to analyze and variables that should be considered in the analysis? Discuss your reasoning for this advice.Compare the abnormal returns in Problems 1 and 2 and discuss the reason for the difference in each case.Explain how a given investor chooses an optimal portfolio. Will this choice always be a diversified portfolio, or could it be a single asset? Explain your answer.
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