Asked by Vanessa Huynh on Jun 09, 2024
Verified
According to the semistrong form of the efficient markets hypothesis, ________.
A) stock prices do not rapidly adjust to new information
B) future changes in stock prices cannot be predicted from any information that is publicly available
C) corporate insiders should have no better investment performance than other investors even if allowed to trade freely
D) arbitrage between futures and cash markets should not produce extraordinary profits
Semistrong Form
A theory in the Efficient Market Hypothesis that postulates all publicly available information is already reflected in stock prices, including historical data and new public information.
Efficient Markets Hypothesis
A theory suggesting that financial markets fully reflect all available information, making it impossible to consistently achieve higher returns than the market average.
Publicly Available
Information or data that is not restricted and can be accessed or utilized by the general public.
- Recognize the framework of market efficiency in different configurations and its impact on the formulation of investment strategies.
Verified Answer
LM
Lakithia McmullenJun 12, 2024
Final Answer :
B
Explanation :
The semistrong form of the efficient markets hypothesis argues that stock prices adjust rapidly to new public information, implying that future changes in stock prices cannot be predicted from any publicly available information. option A is incorrect because it contradicts the semistrong form of the efficient markets hypothesis. Option C is an implication of the strong form of the efficient markets hypothesis, which goes beyond the scope of the semistrong form. Option D is an implication of the no-arbitrage condition and does not relate to the semistrong form of the efficient markets hypothesis.
Learning Objectives
- Recognize the framework of market efficiency in different configurations and its impact on the formulation of investment strategies.