Question

The efficient-market hypothesis:a) has little empirical validity. b) implies that security prices properly reflect information available to investors and that active traders will find it difficult to outperform a buy-and-hold strategy. c) implies that security prices properly reflect information available to investors. d) has little empirical validity and implies that active traders will find it difficult to outperform a buy-and-hold strategy. e) implies that active traders will find it difficult to outperform a buy-and-hold strategy.

Answer 1

Answer:

b) implies that security prices properly reflect information available to investors and that active traders will find it difficult to outperform a buy-and-hold strategy.

Explanation:

The efficient market hypothesis states that the price of assets in the market reflects all information that is available. This means that it is impossible to gain unfair advantage over others in the market as a result of privileged information about a transaction.

In this scenario a buy and hold strategy will be most effective because investors can buy assets and hold them for a long time regardless of short term fluctuations. Sale is made at a optimal time.

Active traders will be subject to short term fluctuations and will most likely not perform like the buy and hold traders