Investors are better off when financial asset prices are determined in an efficient market because

Question

Quizplus · Accepted Answer

In an efficient market, funds will flow from savers to investors offering the most profitable investment opportunities, which leads to optimal allocation of resources and higher returns on assets. Option A is incorrect because efficient markets do not guarantee higher returns, but fair returns based on the risks involved. Option C is incorrect because returns from assets are subject to taxes, irrespective of market efficiency. Option D is incorrect because risky assets can be traded in an efficient market as long as they are appropriately priced to reflect their risk.

Investors Are Better Off When Financial Asset Prices Are Determined