The "filter rule" is a technical analysis tool that says, "Wait until a stock increases by a certain percentage (i.e., the filter)after it has hit a recent all-time low and then buy the stock. Wait
Until it decreases by that percentage after it has hit a recent all-time high to sell the stock."
Proponents of the rule indicate that abnormal profits can be made by following it. If this is the
Case, then

Question

Quizplus · Accepted Answer

If the filter rule consistently generates abnormal profits, it implies that past price information (which is publicly available) can be used to predict future price movements. This contradicts the weak form of market efficiency, which posits that all past trading information is already reflected in stock prices and cannot be used to achieve consistent excess returns. Therefore, if the filter rule works, markets cannot be considered weakly efficient, let alone semi-strong or strong efficient.

The "Filter Rule" Is a Technical Analysis Tool That Says