In an efficient market the correlation coefficient between stock returns for two nonoverlapping time periods should be
A)positive and large.
B)positive and small.
C)zero.
D)negative and small.

Question

Quizplus · Accepted Answer

In an efficient market, all available information is already reflected in stock prices. Therefore, the past returns of stocks should not be able to predict future returns. As a result, there should be no correlation between stock returns for nonoverlapping time periods.

In an Efficient Market the Correlation Coefficient Between Stock Returns