If a bond portfolio manager believesI) in market efficiency, he or she is likely to be a passive portfolio manager.II) that he or she can accurately predict interest-rate changes, he or she is likely to be an active portfolio manager.III) that he or she can identify bond-market anomalies, he or she is likely to be a passive portfolio manager.

Question

Quizplus · Accepted Answer

Belief in market efficiency typically leads to a passive management approach, as it assumes all available information is already reflected in bond prices, making it hard to outperform the market through active management. Believing in the ability to predict interest-rate changes or identify market anomalies suggests a belief in market inefficiencies, which aligns with an active management approach to exploit perceived mispricings. However, belief in identifying bond-market anomalies would actually make one more likely to be an active, not passive, manager, making statement III incorrect in this context.

If a Bond Portfolio Manager BelievesI) in Market Efficiency, He