Active trading in markets and competition among securities analysts helps ensure that:
I. Security prices approach informational efficiency.
II. Riskier securities are priced to offer higher potential returns.
III. Investors are unlikely to be able to consistently find under- or overvalued securities.

Question

Quizplus · Accepted Answer

Active trading in markets helps ensure that security prices approach informational efficiency by incorporating new information quickly, and competition among securities analysts helps ensure that riskier securities are priced to offer higher potential returns. Additionally, the combination of active trading and competition among securities analysts makes it unlikely that investors will consistently find under- or overvalued securities. Therefore, all three statements are true.

Active Trading in Markets and Competition Among Securities Analysts Helps