Question

The efficient market hypothesis rests on which of the following assumptions?I. Information is widely available to all investors almost simultaneously.II. Investors react quickly to new information.III. Investors correctly interpret all available information.IV. Events which affect the market occur randomly.A) I and II onlyB) I, II and III onlyC) I, III and IV onlyD) I, II, III and IV

Answer 1

Answer:

The correct answer is option D.

Explanation:

The efficient market hypothesis is considered a cornerstone of modern financial theory. It states that share prices all the information, including public, private, future information, and predictions.

It is based on certain assumptions.

1. Information is widely and freely available to everyone.
2. Investors interpret this information correctly and quickly react to it.
3. Events that occur in the market are random

The investors cannot beat the market and make risk free excess returns because price reflects all information that is available to everyone.