Conceptual questions about stocks.

Sorry if this is the wrong sub but I need help on some homework that I can't seem to find the answers online:

1.) Can people can use stock size and book to market ratio to predict stocks’ future returns against market efficiency? Why? In other words, are small and value stocks underpriced? What would be the criterion to judge whether small and value stocks are mispriced or fairly priced?

2.) Do size and value effects mean that any small stock tends to outperform large stock and that any value stock tends to outperform growth stock?

3.) Do size and value effects mean that average small stocks outperform average large stocks and that average value stocks outperform average growth stocks in every year/every month? What should be the correct horizon to invest in the size and the value effects?

4.) Google is a big stock and LinkedIN is a small stock, but at the same time Google has a higher book-to-market ratio than LindedIN. According to the size effect, Google should have lower return than LinkedIN because its size is bigger; but according to the value effect, Google should have higher return than LinkedIN because its book to market ratio is higher. Is the above statement correct? Explain.

5.) Which of the following outcome(s) are most likely to be consistent with the hypothesis that market price is efficient in a Fama-French three factor world? Why?

A. Every stock should have zero return

B. All stocks should have the same return

C. High market beta stocks have high returns

D. Small firms and value firms on average have high returns. Even though DFA recently offered small and value portfolios, which exactly focus on earning the high returns of small and value firms, investors do not feel such portfolios offer more attractive investment opportunities in terms of risk-return trade off.

6.) What are the rational and irrational reasons you think that may lead to high returns in small and value stocks?

Submitted April 07, 2016 at 03:06AM by wachiga http://ift.tt/1qvvIa7