An Implication of the Efficient Market Hypothesis Is That It

question 68

Multiple Choice

An implication of the Efficient Market Hypothesis is that it is very hard for an actively managed mutual fund to earn above average returns. This is true for all of the following reasons EXCEPT

• A) new information is predictable and therefore already incorporated into the stock prices.
• B) new information is by definition unpredictable, thus hard to incorporate into stock prices.
• C) actively managed mutual funds typically charge fees of about 1.5%.
• D) index funds make no attempt to analyze stocks.

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