Discussing the Existence of a Financial Analyst
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Question: In an efficient equity market, where there are no mispriced stocks, no one can make abnormal rates of return. If this is the case, how would you then justify the existence of well-paid financial analysts in all states?
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Solution Summary
The expert discusses the existence of a financial analyst.
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As you know we have three forms of market efficiency:
1. Weak Form: One cannot earn abnormal returns just by doing technical analysis.
2. Semi-strong form: One cannot earn abnormal returns just by doing fundamental analysis.
3. Strong Form: One cannot earn abnormal returns just by insider information.
The stock price is determined in the market by the demand and supply of the stock. Buyers and sellers perform their own analysis about the stock performance and calculate the intrinsic value of the stock. At the market clearing price, the ...
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