How can hedge funds correct this inefficiency

Reference no: EM131304224

In describing the work of hedge funds, financial journalist Sebastian Mallaby has observed: [Research] showed that the unglamorous "value" stocks were underpriced relative to overhyped "growth" stocks. This meant that capital was being provided too expensively to solid, workhorse firms and too cheaply to their flashier rivals. . . . It was the function of hedge funds to correct inefficiencies like this.

a. Explain what the first two sentences in this excerpt mean: What is the connection between the relative prices of these two types of firms and their cost of raising capital? Who is "providing" capital to these firms?

b. How can hedge funds correct this inefficiency?

Reference no: EM131304224

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