Question: Consider the price-earnings (P/E) ratio effect in testing the Efficient Market Hypothesis. (a) Why might the P/E effect be considered as an efficient market anomaly?

Consider the price-earnings (P/E) ratio effect in testing the Efficient Market Hypothesis. (a) Why might the P/E effect be considered as an efficient market anomaly? Which form of Efficient Market Hypothesis is violated? Discuss (20 Marks) (b) is there any rational explanation for it? Discuss. (15 Marks) (c) Is there any behavioural explanation for it? Discuss. (15 Marks) Consider the price-earnings (P/E) ratio effect in testing the Efficient Market Hypothesis. (a) Why might the P/E effect be considered as an efficient market anomaly? Which form of Efficient Market Hypothesis is violated? Discuss (20 Marks) (b) is there any rational explanation for it? Discuss. (15 Marks) (c) Is there any behavioural explanation for it? Discuss. (15 Marks)

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