Efficient Markets Hypothesis The Durkin Investing Agency has been the best stock picker in the country for
Question:
Efficient Markets Hypothesis The Durkin Investing Agency has been the best stock picker in the country for the past two years. Before this rise to fame occurred, the Durkin newsletter had 200 subscribers. Those subscribers beat the market consistently, earning substantially higher returns after adjustment for risk and transaction costs. Subscriptions have skyrocketed to 10,000. Now, when the Durkin Investing Agency recommends an equity, the price instantly rises several points. The subscribers currently earn only a normal return when they buy recommended shares because the price rises before anybody can act on the information.
Briefly explain this phenomenon. Is Durkin’s ability to pick winners consistent with market efficiency?
Step by Step Answer:
Corporate Finance
ISBN: 9780077173630
3rd Edition
Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe