The Efficient Market Hypothesis Says That

question 22

Multiple Choice

The efficient market hypothesis says that

• A)market prices reflect underlying asset values.
• B)individual investors should not participate in the financial markets.
• C)investors should expect to earn abnormal profits.
• D)financial managers can accurately time stock and bond sales.
• E)creative accounting can be used to inflate stock prices.

---

Definitions:

Externality

An outcome from economic actions affecting external third parties not related to the activity, which could be either advantageous or detrimental.

Market

A system or an area where buyers and sellers interact to trade goods, services, or financial instruments.

Positive Externality

A benefit gained by a third party not directly involved in a transaction or activity, where the social or economic gain is not reflected in the market price.

Social Planner

A theoretical decision-maker in economics who aims to achieve optimal outcomes for society by considering the allocation of resources and distribution of goods and services.