If the Securities Market Is Efficient, an Investor Need Only

question 44

Multiple Choice

If the securities market is efficient, an investor need only throw darts at the equity pages to pick securities and be just as well off.

• A)This is true because there are no differences in risk and return.
• B)This is true because in an efficient stock market prices do not fluctuate.
• C)This is false because professional portfolio managers prefer to generate commissions by
• Active trading.
• D)This is false because investors may not hold a desirable risk-return combination in their
• Portfolio.
• E)This is false because the markets are controlled by the institutional investors.

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Definitions:

Ambiguous Situations

Scenarios or events that lack clear context or guidelines, leading to uncertainty in perception or decision-making.

Pluralistic Ignorance

A psychological state where individuals wrongly believe their thoughts, feelings, or behaviors are different from those of the majority, often leading to conformity with perceived norms.

Informational Influence

This occurs when an individual conforms to a group's behavior under the assumption that the group possesses more accurate information.

Private Acceptance

The genuine alignment of one's internal beliefs or attitudes with those of a group, without external pressure.