Question

Which of the following statements accurately describes the efficient market hypothesis? A. Stock prices must go up upon good news, even if the news was expected. B. Most stock traders can consistently outperform the market, even after taking into account their transactions costs and their risk-taking behavior. C. No one can ever outperform the market. D. Prices fully reflect all available information.

Answer 1

Answer:

D. Prices fully reflect all available information

Explanation:

As per the efficient market hypothesis, security prices reflect full available market information due to which stocks trade at their fair market value prices.

Due to stocks trading at their fair market value, any possibility of making arbitrage gains is wiped out as buying low and selling high isn't a possibility.

The theory also states that the only way to earn higher profits is by assuming a higher degree of risk.

The theory states that stock prices follow a random walk and there is no perfect method to estimate the patterns and trends of the market irrespective of fundamental or technical analysis carried out.

The efficient market theory mentioned 3 conditions or market forms, strong form, semi strong form and weak form.