Which of the Following Is True of Efficient-Market Hypothesis

question 98

Multiple Choice

Which of the following is true of efficient-market hypothesis?

• A) Securities are typically in disequilibrium, meaning they are fairly priced and their expected returns are more than their required returns.
• B) Insider trading scandals have proven that stocks are not fully and fairly priced; as a result, it would be worthwhile for investors should spend time searching for mispriced (over- or under-valued) stocks.
• C) At any point in time, security prices fully reflect all internal information available about the firm and its securities, and these prices are insensitive to new information.
• D) Since stocks are fully and fairly priced, it follows that investors should not waste their time trying to find and capitalize on miss-priced (undervalued or overvalued) securities.

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Definitions:

Control Chart

A tool used in quality control processes to monitor, control, and improve process performance over time, displaying data points in time order.

Process Distribution

Refers to the statistical distribution characteristic of the outcomes of a random process or the variation in a series of processes over time.

Mean

The mean of a collection of numbers, determined by dividing their total sum by the number of elements within the collection.

Statistical Method

A mathematical approach used for analyzing statistical data, often for the purpose of making conclusions from the data.