An efficient financial market is one in which

Question

Quizplus · Accepted Answer

An efficient financial market is one in which all information available to market participants is reflected in market prices. This means that market prices accurately reflect all available information about a security or asset, making it difficult for investors to consistently earn abnormal returns or outperform the market. The other choices, while desirable, do not necessarily contribute to market efficiency on their own. For example, zero transactions costs may reduce friction in the trading process, but if market participants are only trading on limited information, market prices may not accurately reflect the true value of a security. Similarly, high levels of liquidity may make it easier to buy and sell securities, but if there is limited information available, market prices may not be accurate.

An Efficient Financial Market Is One in Which