For a stock to be in equilibrium, that is, for there to be no consistent pressure for its price to depart from its current level, what must occur?

Question

Quizplus · Accepted Answer

In order for a stock to be in equilibrium, the expected future returns must be equal to the required return. This means that investors expect to earn the return that is required to compensate for the risk they are taking on. If the expected returns are higher than the required return, investors will want to buy the stock, driving up its price, and if the expected returns are lower than the required return, investors will want to sell the stock, driving down its price. Only when the expected future returns are exactly equal to the required return will there be no pressure for the stock's price to depart from its current level, and the stock will be in equilibrium.

For a Stock to Be in Equilibrium, That Is, for There