Question

Which of the following statement(s) is true if the efficient market hypothesis holds? Choose one answer.

Select one:

a. It implies perfect forecasting ability

b. It implies market is irrational

c. It implies that prices follow a particular pattern

d. It implies that prices reflect all available information

Answer 1

Answer:

d. It implies that prices reflect all available information

Explanation:

Efficient Market hypothesis emphasizes upon the fact that stock prices are an outcome of released public information and assumes investors to be rational.

It points towards sensitivity of the market to the information made available and as per it, investors actions are an outcome of information that becomes available to them.

It  means securities are correctly priced which wipes out any possibility of earning arbitrage gains i.e buying a security at a low price and selling it at a higher price.