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 only includes public information. Private (insider) info is reflected only in strong-form efficiency.
- B) Incorrect. Efficient markets do not imply identical expected returns; returns are proportional to risk.
- C) Correct. In weak-form efficiency, all historical price trends are already incorporated into current prices, rendering trend-based strategies ineffective.
- D) Incorrect. Since A and B are incorrect, D cannot be correct.
- E) Incorrect. Statement C is true, so "None of the above" is false.
Conclusion: Statement C is the only correct option.