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Suppose you discovered a systematic relationship between the priceearnings ratios of stocks and the performance of...

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Finance

Suppose you discovered a systematic relationship between thepriceearnings ratios of stocks and the performance of stocks. Inother words, knowledge of a firm’s price-earnings ratio provedhelpful in predicting which stocks would show superior performance.Would this evidence be consistent with any of three versions of theefficient markets hypothesis?

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PE ratio indicates how much the investors are willing to pay for a stock to earn a dollar of earnings For example if a PE ratio of 18 means that investors are willing to pay 18 for a 1 of earnings    See Answer
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Transcribed Image Text

Suppose you discovered a systematic relationship between thepriceearnings ratios of stocks and the performance of stocks. Inother words, knowledge of a firm’s price-earnings ratio provedhelpful in predicting which stocks would show superior performance.Would this evidence be consistent with any of three versions of theefficient markets hypothesis?

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