Skip to content

CFA Level I · CFA Level I Exam · Equity Issuance and Trading

A researcher finds that small-capitalization stocks earned higher average returns in January than in other months, but the effect disappears after transaction costs and disappears in recent data once it became widely known. This evidence is most likely to be interpreted as:

The evidence is best seen as a possible anomaly that may not be exploitable. The January pattern appears in historical data, but after transaction costs and once it became widely known the excess return disappeared, so it does not demonstrate a reliably profitable strategy against market efficiency.

  1. Aproof that the market is strong-form efficient
  2. Ba possible anomaly that may not be exploitable after costs and discoveryCorrect
  3. Ca violation of weak-form efficiency that remains profitable after costs

Explanation

Calendar patterns such as the January effect are anomalies. If gains vanish after transaction costs, or once the pattern is publicized, they cannot be exploited reliably, which is consistent with efficiency. The other options overstate what the evidence shows.

Did you get it right without looking?

One question tells you little. A timed set on Equity Issuance and Trading shows your real accuracy, how long you take and where you lose marks.

Practise Equity Issuance and TradingFree diagnostic mock

More Equity Issuance and Trading questions