GB792 Unit 1 Discussion Board Post Example

Course	GB792 Advanced Topics in Finance
Unit	Unit 1
Paper type	Discussion board post
Length	About 510 words, 2 pages double-spaced
Format	APA 7 discussion post
School	Purdue University Global
Program	MBA
Updated	October 2026

Free sample paper for GB792 Unit 1

Prices That Disagree With Themselves: A Unit 1 Discussion Post on Testing Market Efficiency

GB792 · Unit 1 Discussion Post

Posted by [Student Name]

The classmate in the reply is composite; the cases and studies cited are real.

What this part is doingOpening on the obstacle rather than on an anomaly shows the post understands why most tests are inconclusive.

Initial Post

The question this week asks what evidence would count against market efficiency. I want to start by conceding the main obstacle. Fama (1970) pointed out, and restated in his later review (Fama, 1991), that any test of efficiency is also a test of a model of expected returns. If a strategy earns high returns, either the market is inefficient or the strategy carries risk the model fails to measure. A pattern in returns therefore rejects efficiency only jointly with the benchmark used to call it abnormal, and a defender can always propose a better benchmark.

Some evidence escapes that problem because it needs no benchmark at all. Royal Dutch and Shell were two companies whose claims on a single pool of cash flows were fixed at 60 and 40 percent under an alliance dating from 1907. In an efficient market, Royal Dutch's market value should always have been one and a half times Shell's. Froot and Dabora (1999) showed that the ratio drifted far from that level for years, with deviations at times exceeding 30 percent. No risk model can explain why two claims on the same cash flows should be priced differently, since the risk is identical by construction.

The second case is Palm. In March 2000, 3Com sold a small stake in its Palm subsidiary to the public and announced that it would distribute its remaining shares to 3Com's own shareholders, about one and a half Palm shares for each 3Com share. Lamont and Thaler (2003) showed that Palm's market value exceeded the entire market value of 3Com, which still owned most of Palm. That implied the rest of 3Com's business had a negative value, which is impossible for a company with limited liability.

When two prices on the same cash flows disagree, no model of risk can reconcile them, so the joint hypothesis problem disappears.

Why did such gaps last? Shleifer and Vishny (1997) explain that arbitrage is limited: closing the gap requires capital, shorting the overpriced claim can be costly or impossible, and the gap can widen before it closes, forcing arbitrageurs to exit at a loss. In the Palm case, shares were hard to borrow for short sales.

What do the cases establish? They show that prices can depart from fundamental value, sometimes substantially and for long periods. They do not show that markets are generally inefficient, or that ordinary investors could profit from the departures, given the costs of exploiting them.

Reply to Darnell

Darnell, you cite the value premium as clear evidence of inefficiency. I would file it separately from the twin-share cases. A value premium can always be read as compensation for distress risk, so it runs straight into the joint hypothesis. What evidence would make the risk explanation impossible rather than only less likely?

What this part is doingThe reply sorts the classmate's evidence by whether it escapes the joint hypothesis, applying the post's own test.

References

Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417. https://doi.org/10.2307/2325486

Fama, E. F. (1991). Efficient capital markets: II. The Journal of Finance, 46(5), 1575-1617. https://doi.org/10.1111/j.1540-6261.1991.tb04636.x

Froot, K. A., & Dabora, E. M. (1999). How are stock prices affected by the location of trade? Journal of Financial Economics, 53(2), 189-216. https://doi.org/10.1016/S0304-405X(99)00020-3

Lamont, O. A., & Thaler, R. H. (2003). Can the market add and subtract? Mispricing in tech stock carve-outs. Journal of Political Economy, 111(2), 227-268. https://doi.org/10.1086/367683

Shleifer, A., & Vishny, R. W. (1997). The limits of arbitrage. The Journal of Finance, 52(1), 35-55. https://doi.org/10.1111/j.1540-6261.1997.tb03807.x

The Purdue Global GB792 Unit 1 instructions

The first GB792 board asks what kind of evidence could count against market efficiency. Start by stating the joint hypothesis problem in your own words and conceding what it means for most return anomalies. Then identify evidence that does not depend on a model of expected returns, such as prices of identical or linked claims that disagree. Describe each case with its facts and source. Explain why the gaps persisted rather than closing, using theory on the limits of arbitrage. State precisely what the cases establish and what they do not, especially whether anyone could have profited. End with a question that asks peers which of their own examples escape the benchmark problem. In the reply, sort a classmate's evidence by the same test and ask what would make their preferred explanation impossible rather than merely unlikely.

How the GB 792 Unit 1 example is put together

The post opens by conceding Fama's point from 1970 and 1991 that an abnormal return is defined only against a benchmark. Royal Dutch and Shell follow, with Froot and Dabora's evidence of deviations exceeding 30 percent from the 60 to 40 parity. The Palm case comes next: Lamont and Thaler's finding that Palm's value exceeded that of 3Com, which owned most of it. The highlighted sentence explains why such cases sidestep the joint hypothesis. Shleifer and Vishny explain why arbitrage could not close the gaps, including the difficulty of borrowing Palm shares. The post separates what the cases show from claims about general inefficiency and profit, and the reply to Darnell places the value premium back inside the benchmark problem.

GB792 Unit 1 rubric: what earns full points

Marks on the first GB792 board go to the logic of the test. The rubric first wants the joint hypothesis stated correctly, and an honest concession about what it does to most anomalies. Evidence earns credit when it genuinely avoids the benchmark problem, as twin shares and carve-outs do. Each case should be described with the facts that make the inconsistency clear and cited to the study that documented it. Explaining persistence through costly, risky arbitrage shows command of the theory behind the evidence. The distinction between prices being wrong and profits being available is often a separate rubric point. Your reply scores when it runs the benchmark test on a peer's evidence. APA 7 citations to the original studies are expected.

GB792 Unit 1 help from the desk

Many GB792 Unit 1 posts list well-known anomalies such as momentum or the value premium as proof of inefficiency, without addressing the benchmark problem those patterns face. Others describe the twin-share case loosely, missing the fixed ownership split that makes the mispricing undeniable. Students often stop at showing a gap and never ask why arbitrageurs failed to close it. Some leap from a few mispricings to the claim that markets are generally inefficient. Replies frequently agree with the classmate and add another anomaly. State the joint hypothesis, choose benchmark-free evidence, give its facts, explain the limits of arbitrage, calibrate the conclusion and press the classmate's evidence with the same test. If your section uses another example, our writers can build the post around it.

Get a GB792 Unit 1 example written to your instructions

Tell us which efficiency question your Unit 1 board has posed, or which case you would like examined, and add the posting instructions and rubric. Expect a post that concedes the joint hypothesis first, builds on evidence that needs no pricing model and ends by separating mispricing from profit. A first custom sample costs nothing, typically landing in 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.

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GB792 Unit 1 questions, answered

Why not argue from a well-known anomaly like momentum?

Because a momentum premium rejects efficiency only if the benchmark model is correct, and a defender can always propose a missing risk factor. That does not make anomalies useless; it makes them weaker evidence for this particular question. Your post can still discuss them, provided it states what model they are measured against and why that model deserves trust.

Is the Palm and 3Com episode too old to cite?

Its age is an advantage here. The episode is thoroughly documented, Lamont and Thaler analyzed it in the Journal of Political Economy in 2003, and nothing about the logic has changed since. Where a section asks for recent evidence, dual-listed shares and closed-end fund discounts offer comparable cases, and the same reasoning about benchmarks and short-sale costs carries across.

Does the post have to take a side on efficiency?

It takes a narrow one. The sample concludes that law-of-one-price violations show prices can stay wrong for long periods, and it declines to call markets inefficient in any broader sense, since neither case offered a riskless profit to most investors. Many doctoral boards reward that kind of bounded claim over a sweeping verdict on markets as a whole.

Where can I find a free GB792 Unit 1 sample paper?

This page carries a full GB792 Unit 1 discussion post on market efficiency, using Royal Dutch and Shell and the Palm and 3Com carve-out to escape the joint hypothesis, with a reply to a classmate.

What is the joint hypothesis problem?

Any test of market efficiency also tests a model of expected returns. An apparently abnormal return could mean the market is inefficient or that the model left out a risk, and the data cannot tell which.