In tests of the semistrong-form efficient market hypothesis,an adjustment for market effects is carried out by
A) Calculating the historical return.
B) Calculating the market rate of return.
C) Calculating the abnormal rate of return.
D) Calculating the cross-sectional return.
E) None of the above.

Question

Quizplus · Accepted Answer

In tests of the semistrong-form efficient market hypothesis, an adjustment for market effects is carried out by calculating the abnormal rate of return. The abnormal rate of return is the difference between the actual return of a security and the expected return based on the market's performance. This adjustment helps to determine whether a security's return is due to its own unique characteristics or simply a result of overall market conditions. Therefore, option C is the best choice.

In Tests of the Semistrong-Form Efficient Market Hypothesis,an Adjustment for Market