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) calculating the monthly return.

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. This is done by subtracting the expected rate of return based on market conditions from the actual rate of return. The difference represents the abnormal or excess return, which is used to determine whether the market is efficient or not.

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