The Theory of Efficient Markets Implies

question 119

Multiple Choice

The theory of efficient markets implies:

• A) stock prices should be highly unpredictable.
• B) the price at which stocks currently trade only reflect past information.
• C) expectations do not play a role in stock prices because this isn't real information.
• D) the chartists are in fact correct that there are patterns in stock prices.

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Definitions:

Cognitive Miser

A theoretical concept suggesting that humans prefer to take mental shortcuts for decision-making to conserve cognitive energy.

Demand Characteristics

Aspects of a study that give away its purpose or communicate how the participant is expected to behave.

Correlated

When two or more variables have a statistical relationship with each other, indicating that changes in one are associated with changes in the other.

Underlying Construct

Refers to the theoretical concept or psychological variable that is being measured or assessed, but is not directly observable.