Consider the following two statements: (i) If markets are strong form eﬃcient, the only reason that prices change is because there is news.
(ii) In strong form eﬃcient markets, investors can ignore their risk exposure.
A)(i) is correct, (ii) is incorrect.
B)(ii) is correct, (i) is incorrect.
C)Both (i) and (ii) are correct.
D)Both (i) and (ii) are incorrect.
E)In strong form eﬃcient markets, prices do not change.

Question

Quizplus · Accepted Answer

(i) is correct because in strong form efficient markets, all information (including news) is already reflected in the stock prices. Therefore, the only reason for price changes is new information. (ii) is incorrect because although investors may not be able to earn excess returns by exploiting market inefficiencies, they still need to manage their risk exposure.

Consider the Following Two Statements: (I) If Markets Are Strong