One Reason Why the Efficient Capital Market Hypothesis May Not

question 14

Multiple Choice

One reason why the efficient capital market hypothesis may not hold in reality is that:

• A)risk has been eliminated from the process of arbitrage.
• B)most investors appear in studies to be rational.
• C)arbitrage appears to be fully effective.
• D)irrationality may be related across individuals.
• E)irrationalities cancel out across investors.

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Definitions:

Consumers

Individuals or groups who use goods and services generated within the economy, contributing to demand.

Perfectly Elastic

This term refers to a situation in demand or supply where the quantity demanded or supplied responds infinitely at a particular price level.

Excise Tax

A type of tax imposed on specific goods, services, or transactions, often with the intent of discouraging their use or consumption, or to raise revenue.

Downward-Sloping

A term typically used in economics to describe a curve or line on a graph that represents a decrease in one variable as another variable increases, often used to describe demand curves.