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Efficient Capital Market

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Efficient Capital Market assumptions and Portfolio Management assumptions are related. In the light of the actual economical-financial problem, provide any examples contradicting these assumptions?

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Solution Summary

This solution provides examples that contradict the assumptions made by efficient capital market theory and portfolio management theory.

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First, let me briefly summarize what efficient market and portfolio management are.

The efficient market hypothesis (EMH) claims that assets are always priced correctly (depending on what degree of EMH you believe in, there are various conditions as to how correct the market can price assets). Given that the EMH is true, modern portfolio theory says that you can always get the best portfolio (portfolio A is better than B when ...

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