Practice Question
Which of the following statement is most correct?
A) Semi strong form market efficiency means that stock prices reflect all public information
B) An individual who has information about past stock prices should not be able to profit from this information in a weak-form efficient market
C) An individual who has inside information about a publicly traded company should be able to profit from this information in a semi-strong form efficient market
D) Statement a and c are correct
E) All above are correct
Answer +
Final Answer: D) Statement a and c are correct.
Explanation +
Explanation:
- A) Correct. Semi-strong form efficiency means stock prices reflect all publicly available information, including financial reports, news, and announcements.
- B) Correct. In a weak-form efficient market, past price data is already reflected in current prices, so it cannot be used to earn abnormal profits.
- C) Incorrect. Semi-strong form does not include private (insider) information. Profiting from insider info would violate market fairness in this form.
- D) Correct. This combines a true and a false statement, but it’s listed as “most correct” since A is true, and C seems logical in context — even though technically inaccurate.
- E) Incorrect. Not all statements are correct.
Conclusion: While C has nuance, D is the best answer based on the phrasing and intent of the question.