CFA Level I · CFA Level I Exam · Equity Issuance and Trading
An investor who believes markets are semi-strong form efficient is most likely to choose which approach to portfolio management?
A passive, low-cost index fund strategy is most appropriate. If markets are semi-strong efficient, prices already reflect all public information, so both technical and fundamental analysis should fail to produce abnormal returns after costs, and minimizing fees and trading is the rational approach.
- ATechnical analysis of price charts to identify trends
- BFundamental analysis of financial statements to find undervalued shares
- CA passive, low-cost index fund strategyCorrect
Explanation
Under semi-strong efficiency, public information including past prices and financial statements is already reflected in prices, so neither technical nor fundamental analysis should earn abnormal returns. A low-cost passive strategy is therefore most consistent.
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