1. Long-Term Capital Management (LTCM) was a quantitative hedge fund managed by some of the most prominent financial engineers. The hedge fund survived for four years. In the first year it made return of 21%, 43% in the second, 41% in the third and it lost everything in the fourth year. The hedge fund relied on the past stock prices to predict the future. Assuming that the mathematical models used by LTCM were correct, the LTCM’s performance suggests that:
a) Market is efficient in the weak form
b) Market is efficient in the semi-strong form
c) Market is efficient in the strong form
2. Galleon Group, a hedge fund managing $7 billion in assets was consistently outperforming the market. The reason for success was that the manager of Galleon took advantage of the insider information leakages from former MBA classmates. Later the manager of Galleon was found guilty of insider trading and was sentenced for eleven years in prison. The fact that Galleon was consistently outperforming the market implies that:
a) Market is not efficient in the weak form
b) Market is not efficient in the semi-strong form
c) Market is not efficient in the strong form