An important implication of the idea that markets are efficient is that
A) an investor can make money by buying undervalued stocks and selling overvalued ones.
B) the price of a share immediately incorporates new publicly available information that affects its value.
C) dealers can ignore some new information on a share that affects its value.
D) an investor can make above average returns in the stock market by doing careful research of public information about selected stocks.

Question

Quizplus · Accepted Answer

The idea that markets are efficient means that all publicly available information is already reflected in the current price of a share, so any new information that arises would be immediately incorporated into the price. Therefore, it is difficult to consistently make above average returns in the stock market by simply doing research or buying undervalued stocks since the market already accounts for this information. Dealers cannot ignore any new information, as this would lead to an inefficient market.

An Important Implication of the Idea That Markets Are Efficient