The efficient markets hypothesis suggests that investors
A)should purchase no-load mutual funds which have low management fees.
B)can use the advice of technical analysts to outperform the market.
C)let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy.
D)act on all "hot tips" they hear.

Question

Quizplus · Accepted Answer

The efficient markets hypothesis suggests that it is difficult to consistently outperform the market by picking individual stocks or using technical analysis. Therefore, a low-cost, passive investment strategy such as investing in no-load mutual funds with low management fees is recommended. Option A suggests this strategy and is thus the best choice. Option B is incorrect as technical analysis is unlikely to provide an edge in an efficient market. Option C is incorrect as the efficient markets hypothesis suggests that there are no unexploited profit opportunities to be found in the market, making a buy and hold strategy viable. Option D is incorrect as "hot tips" are unlikely to lead to consistent outperformance in an efficient market.

The Efficient Markets Hypothesis Suggests That Investors