| Course | FIN 335 Financial Markets |
|---|---|
| Module | Module 6 |
| Paper type | undergraduate discussion post on stock market efficiency and active versus passive investing |
| Length | About 430 words, 3 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | BS Finance |
| Updated | October 2026 |
Free sample paper for FIN 335 Module 6
Module Six Discussion
Forty Stocks or the Whole Market?
The composite Billings bank's trust department manages $780 million for about 600 clients, mostly ranch families and retirees across Montana and Wyoming. For the stock portion of their portfolios, two portfolio managers choose about forty large U.S. companies, and clients pay 1 percent a year on their assets. A new trust officer asked whether clients would be better served by index funds that hold the whole market for under 0.1 percent.
Fama (1970) set out three forms of the efficient market hypothesis. In the weak form, past prices cannot predict future ones. In the semi-strong form, prices quickly reflect all public information, so analyzing earnings reports and news cannot earn returns above what the risk justifies. In the strong form, even private information is reflected. Most evidence supports something close to the semi-strong form for large, heavily traded stocks, which is exactly what the trust department buys. Hundreds of analysts follow each of those companies, and new information shows up in prices within minutes.
Malkiel (2003) reviewed the challenges to efficiency, including momentum, bubbles and investor overreaction, and concluded that while markets are not perfect, the patterns are rarely large or reliable enough to profit from after costs. French (2008) estimated that U.S. investors collectively spend a meaningful share of their returns each year trying to beat the market, which as a group they cannot do, since together they are the market. The department's own record fits: over ten years its stock portfolios trailed the S&P 500 by about 0.8 percentage points a year after fees.
The managers have answers worth hearing. Their portfolios fell less than the index in 2022, and clients value talking to someone who knows why each stock is held. Bubbles, such as technology stocks in 2000, show that prices can drift far from value for long periods. But a smaller loss in one year does not offset a decade of trailing returns, and an index fund can sit inside a plan built and explained by the same trust officers.
I would move the core of each stock portfolio to index funds and redirect the department's effort to what clients cannot easily get elsewhere: tax planning around land sales, estate transfers between generations of ranch families and advice on closely held businesses. Those services are where a local trust department has an advantage. Smaller or less-followed markets may still reward careful research, but large U.S. stocks are not that market.
Where, if anywhere, do you think active management still earns its fee, and what evidence would convince you?
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
French, K. R. (2008). Presidential address: The cost of active investing. The Journal of Finance, 63(4), 1537-1573. https://doi.org/10.1111/j.1540-6261.2008.01368.x
Malkiel, B. G. (2003). The efficient market hypothesis and its critics. Journal of Economic Perspectives, 17(1), 59-82. https://doi.org/10.1257/089533003321164958
What the FIN 335 Module 6 instructions ask for
The Module Six discussion in FIN 335 usually asks about the stock market and the efficient market hypothesis: whether prices reflect available information, what the weak, semi-strong and strong forms mean and what that implies for investors and professional managers. Some prompts ask about anomalies, bubbles or behavioral finance. A strong post explains the forms accurately, uses evidence rather than opinion and applies the idea to a specific decision. It recognizes the strongest counterarguments, such as bubbles or less efficient corners of the market. Some prompts want a personal investing view and others advice for an institution; the evidence applies differently to each.
How this FIN 335 Module 6 discussion example is built
The post looks at the Billings bank's trust department, which manages $780 million for about 600 clients by choosing roughly forty large U.S. stocks and charging 1 percent a year. It explains that large U.S. stocks are among the most heavily analyzed securities in the world, so the semi-strong form of efficiency is a reasonable working assumption there. Citing Fama, Malkiel and French, it argues that the core of each portfolio should move to index funds costing under 0.1 percent, while the department's value shifts to tax planning, estate work and advice on land and family businesses. It also gives the managers' best counterarguments, a smaller loss in 2022 and the value of personal advice, before answering them.
Where the FIN 335 Module 6 rubric puts the points
Instructors usually grade this discussion on accurate explanation of market efficiency, use of evidence, application to a specific decision, recognition of counterarguments and replies to classmates. Posts that score well distinguish the forms of efficiency, explain why efficiency is stronger in some markets than others, use research on manager performance after costs and reach a practical conclusion. Posts lose credit for claiming markets are perfectly efficient or obviously inefficient without evidence, and for ignoring fees. Some instructors also reward posts that mention behavioral finance as the main challenge to efficiency and explain what it does and does not show.
FIN 335 Module 6 help: the mistakes that cost points
Students often treat efficiency as all or nothing. A better approach asks where markets are most efficient, such as large U.S. stocks, and where they may be less so, such as small or thinly traded securities. Use research on how professional managers perform after fees, not stories about individual winners. Apply the evidence to one decision, such as how a pension or trust should invest. Acknowledge bubbles and anomalies honestly. In replies, ask classmates what evidence would change their view. Keep the theory brief and spend most of the post on the application. Cite performance evidence net of fees, since that is what investors actually receive. A reply can usefully ask a classmate which market they think is least efficient and why.
Get FIN 335 Module 6 written to your instructions
Pass along your FIN 335 Module 6 question. We explain efficiency in its three forms, test the evidence on one real-seeming portfolio choice and leave peers a question to argue over. Delivered in roughly two days; first post free. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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FIN 335 Module 6 questions, answered
Where can I find a free FIN 335 Module 6 Discussion sample?
This page includes the full FIN 335 Module 6 post applying market efficiency to a bank trust department's stock picking.
What is the efficient market hypothesis?
The idea that security prices reflect available information, so investors cannot consistently earn above-average returns after adjusting for risk without access to information others lack.
What are the three forms of market efficiency?
The weak form says prices reflect past prices, the semi-strong form says they reflect all public information, and the strong form says they reflect all information, including private information.
Do active fund managers beat the market?
On average, after fees and trading costs, most do not outperform comparable index funds over long periods, though some do in particular periods or markets.
What is an index fund?
A fund that holds the securities in a market index, such as the S&P 500, to match the index's return at low cost rather than trying to beat it.