FRM Financial Risk Manager Practice Test

EMH make no such statement. The model uses publicly available information to make the best possible estimate of future performance and does not require a stock price to reflect a company's future performance.

Key Takeaway: Many people blamed the EMH model for the current crisis in 2008 because high stock market prices caused financial leaders to underestimate the severity of the financial bubble. The forecast can be wrong without violating EMH. In short, it appears that the market at large misunderstood the risk profile of many firms, thus overvaluing them.