Most studies of stock market efficiency suggest that the stock market is highly efficient in the weak form and reasonably efficient in the semistrong form. Based on these findings which of the following statements are correct?
A) Information you read in The Wall Street Journal today cannot be used to select stocks that will consistently beat the market.
B) The stock price for a company has been increasing for the past 6 months. Based on this information it must be true that the stock price will also increase during the current month.
C) Information disclosed in companies' most recent annual reports can be used to consistently beat the market.
D) Statements a and c are correct.
E) All of the statements above are correct.

Question

Quizplus · Accepted Answer

The finding that the stock market is highly efficient in the weak form suggests that publicly available information, such as that found in The Wall Street Journal, is already reflected in stock prices and cannot be used to consistently beat the market through stock selection. Therefore, statement A is correct. Statement B is incorrect because the stock price may not necessarily continue increasing in the current month, as there are many other factors that could affect the stock price. Statement C is also incorrect because the finding that the stock market is reasonably efficient in the semistrong form suggests that even information in annual reports is quickly reflected in stock prices and may not be useful for consistent outperformance. Statement D is incorrect, and statement E is incorrect.

Most Studies of Stock Market Efficiency Suggest That the Stock