additional amounts in auto stocks. To the extent that his or her compensation already depends on GMs well-being, the executive is already overinvested in GM and should not exacerbate the lack of diversification. Investors of varying ages also might warrant different portfolio policies with regard to risk bearing. For example, older investors who are essentially living off savings might choose to avoid long-term bonds whose market values fluctuate dramatically with changes in interest rates (discussed in Part IV). Because these investors are living off accumulated savings, they require conservation of principal. In contrast, younger investors might be more inclined toward long-term bonds. The steady flow of income over long periods of time that is locked in with long-term bonds can be more important than preservation of principal to those with long life expectancies. III. Equilibrium In Capital Markets 12. Market Efficiency The McGraw−Hill Companies, 2001           CHAPTER 12 Market Efficiency 351     In conclusion, there is a role for portfolio management even in an efficient market. In- vestors optimal positions will vary according to factors such as age, tax bracket, risk aver- sion, and employment. The role of the portfolio manager in an efficient market is to tailor the portfolio to these needs, rather than to beat the market.         12.3 EVENT STUDIES   The notion of informationally efficient markets leads to a powerful research methodology. If security prices reflect all currently available information, then price changes must reflect new information. Therefore, it seems that one should be able to measure the importance of an event of interest by examining price changes during the period in which the event occurs. An event study describes a technique of empirical financial research that enables an ob- server to assess the impact of a particular event on a firms stock price. Astock market an- alyst might want to study the impact of dividend changes on stock prices, for example. An event study would quantify the relationship between dividend changes and stock returns. Using the results of such a study together with a superior means of predicting dividend changes, the analyst could in principle earn superior trading profits. Analyzing the impact of an announced change in dividends is more difficult than