In an efficient market

Question

Quizplus · Accepted Answer

In an efficient market, investors are compensated properly for the risks they take on. This means that expected returns will be commensurate with the level of risk taken. This also implies that abnormal returns cannot be consistently obtained, as assets will be fairly priced and opportunities for outsized gains will not persist over time. A negative NPV is also not a characteristic of an efficient market, as assets will be priced such that their expected cash flows are discounted appropriately by market participants.

In an Efficient Market