Page 37 - FINAL CFA SLIDES DECEMBER 2018 DAY 13

LOS 46.e: Explain the implications of each
form of market efficiency for fundamental Session Unit 13:
analysis, technical analysis, and the 46. Market Efficiency

choice between active and passive
portfolio management., p240

Abnormal profit (or risk-adjusted returns) -returns are, on average, greater than
equilibrium expected returns.

• Technical analysis seeks to earn positive risk-adjusted returns by using historical price

and volume (trading) data.

• Fundamental analysis is based on public information such as earnings, dividends, and
tanties
various accounting ratios and estimates. One method of testing the semi-strong form

is an event study.

Active vs. Passive Portfolio Management

• If markets are semi-strong form efficient, evidence shows that most mutual fund

managers cannot outperform a passive index strategy over time.

• If so, what is the role of a portfolio manager?

Even if markets are efficient, portfolio managers can add value by establishing and implementing

portfolio risk and return objectives and by assisting clients with portfolio diversification, asset
allocation, and tax management.