If the Financial Markets Are Efficient Then

question 19

Multiple Choice

If the financial markets are efficient then:

• A)stock prices should remain constant.
• B)stock prices should increase or decrease slowly as new events are analyzed and the information is absorbed by the markets.
• C)an increase in the value of one security should be offset by a decrease in the value of another security.
• D)stock prices will change only when an event actually occurs, not at the time the event is anticipated.
• E)stock prices should respond only to unexpected news and events.

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Definitions:

Deliberate System

Definition: A cognitive processing system characterized by intentional, controlled, and often slower thinking, contrasting with automatic, instinctual processes.

Automatic System

A mode of thought that is fast, unconscious, and requires minimal cognitive processing, as opposed to controlled, deliberate thought processes.

Cultural Differences

The diversity in beliefs, norms, practices, and values across different societies or groups, often leading to varied human behaviors and interactions.

Communication

The process of transferring information from one entity to another through the use of mutually understood signs, symbols, or language.