A technical analyst teaches you a trading rule called a "Hoo-Yah." This strategy has produced a 15 percent annual return for the past five years, while the market return has been 12 percent. Which of the following is not true?
A) The return may not be as good as advertised since it is not adjusted for risk
B) This may be a data snooping problem.
C) While the trading rule worked in the past, there is no guarantee it will work in the future.
D) If the trading rule works consistently, it is evidence against semistrong-form market efficiency.
E) All of the above are true.

Question

Quizplus · Accepted Answer

All the statements provided are true regarding the scenario described. A) highlights the importance of risk adjustment in evaluating returns. B) suggests the possibility of overfitting the strategy to past data, which may not predict future performance. C) is a caution against assuming past performance guarantees future results. D) points out that if a trading rule consistently outperforms the market, it challenges the semistrong-form of market efficiency, which posits that all publicly available information is already reflected in stock prices, making it impossible to consistently achieve higher returns.

A Technical Analyst Teaches You a Trading Rule Called a "Hoo-Yah