According to the Efficient Market Hypothesis

question 6

Multiple Choice

According to the efficient market hypothesis

• A)changes in the prices of stocks are predictable.Evidence shows that managed funds typically do better than indexed funds.
• B)changes in the prices of stocks are predictable.Evidence shows that indexed funds typically do better than managed funds.
• C)changes in the prices of stocks are not predictable.Evidence shows that managed funds typically do better than indexed funds.
• D)changes in the prices of stocks are not predictable.Evidence shows that indexed funds typically do better than managed funds.

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Definitions:

Price Searchers

Firms or individuals who determine their selling price based on the demand and supply conditions of the market, rather than being price takers.

Downward-sloping Demand

Refers to the economic principle that, all else being equal, as the price of a good or service decreases, the quantity demanded increases.

Inelastic Demand

A condition in market dynamics where the demand for a product does not significantly change with a change in the product's price.

Competitive Price-searcher

An economic term for a seller that sets its product prices based on what competitors are charging, within a competitive market environment.