Assume that markets are semistrong efficient, but not strong-from efficient. Which of the following statements is most correct?
A) Each common stock has an expected return equal to that of the overall market.
B) Bonds and stocks have the same expected return.
C) Investors can expect to earn returns above those predicted by the SML if they have access to public information.
D) Investors may be able to earn returns above those predicted by the SML if they have access to information which has not been publicly revealed.
E) Answers b and c are correct.

Question

Quizplus · Accepted Answer

In a semistrong efficient market, all publicly available information is already reflected in the stock prices. Therefore, investors cannot earn returns above those predicted by the SML using public information. However, if investors have access to information which has not been publicly revealed, they may be able to earn returns above those predicted by the SML. Therefore, statement D is correct.

Assume That Markets Are Semistrong Efficient, but Not Strong-From Efficient