The strong form of the efficient market hypothesis
Suggests
1) inside information will not lead to superior
Investment results
2) inside information will lead to superior
Investment results
3) studying financial statements will not lead
To superior investment results
4) studying financial statements will lead to
Superior investment results
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4

Question

Quizplus · Accepted Answer

The strong form of the efficient market hypothesis states that all information, including inside information, is already reflected in the stock price, so no individual can consistently achieve superior investment results with any information or analysis. Therefore, answer choices 2 and 4 are incorrect. The hypothesis does not state that studying financial statements is useless, but rather that it will not lead to superior investment results because any publicly available information is already reflected in the stock price. Therefore, answer choice 3 is correct.

The Strong Form of the Efficient Market Hypothesis