What does informational efficiency refer to?
A)Cheap information costs
B)Prices that quickly reflect important information
C)Low number of transactions
D)Both A and B are correct.

Question

Quizplus · Accepted Answer

Informational efficiency refers to the ability of the market to quickly incorporate all relevant information into the price of a security or asset. This means that as soon as new information is released, the price should adjust to reflect it. Therefore, choice B, which states "prices that quickly reflect important information," is the correct answer. Choice A, "cheap information costs," is not directly related to informational efficiency, and choice C, "low number of transactions," is not necessarily an indicator of efficiency.

What Does Informational Efficiency Refer To