Practice Question
Which of the following statements is most correct?
A. Semi strong-form market efficiency implies that all private and public information is rapidly incorporated into stock prices.
B. Market efficiency implies that all stocks should have the same expected return.
C. Weak-form market efficiency implies that recent trends in stock prices would be of no use in selecting stocks.
D. All of the above.
E. None of the above.
Answer +
Final Answer: C) Weak-form market efficiency implies that recent trends in stock prices would be of no use in selecting stocks.
Explanation +
Explanation:
- A) Incorrect. Semi strong-form efficiency implies that all public information is reflected in prices — not private information. That's part of strong-form efficiency.
- B) Incorrect. Market efficiency doesn't imply equal expected returns for all stocks — it implies that stocks are priced fairly relative to their risk.
- C) Correct. Weak-form efficiency states that past price and volume data (including trends) are already incorporated into current prices. Therefore, such trends are not useful for predicting future performance.
- D) Incorrect. Not all statements A–C are correct, so D is false.
- E) Incorrect. Because C is correct, E is false.
Conclusion: The most accurate statement is C.