Question

Please match each of the descriptions with the most appropriate term. Each term will only be used once selecting and purchasing shares in 100 randomly selected stocks is likely to provide you with a selection of stocks whose prices accurately represents all of the publicly available information when the path that a stock price takes is unpredictable the process by which a company is valued based on its accounting statements, as well as its future prospects when an asset's prices rationally reflects all available information Answer Bank informational efficiency efficient market hypothesis fundamental analysis random walk

Answer 1

Answer:

1- Efficient market hypothesis

2- Random walk

3-Fundamental analysis

4- Informational efficiency

Explanation:

1. Efficient market hypothesis This matches with the first part because while purchasing shares of 100 randomly selected stock we or the investor is making sure that the prices of these 100 shares accurately represents all of the publicly available information thus making his/her selection or hypothesis set efficient market hypothesis. 2. Random walk Now, when the path that a stock price takes is unpredictable then the stock holder or investor will have no idea how or to what extend the price of the stock will change thus making decision making impossible or prediction of prices impossible. So, it will be randon walk due to uncertainty of the path that the price will take. 3. Fundamental Analysis The process of valuation of a company based on its accounting statements, as well as its future prospects is fundamental analysis as the value is derived from or after considering the accounting statements and future prospects of a company and it is looking at the basis on the most basic or fundamental financial level. 4. Informational efficiency When the assets prices are rationally reflecting all the available information it means that the information used to arrive at these prices or values was correct or efficient in every manner and used with efficiency i.e. in a timely and cost saving manner with considering all the factors. Thus, this correct reflection indicates the informational efficiency