What does the concept of an efficient market imply?
A)All shares of stock have the same market beta.
B)Selecting stocks by throwing darts at a page of stocks will yield the same return as a carefully selected portfolio.
C)Prices reflect all available information.
D)Stock prices do not fluctuate.

Question

Quizplus · Accepted Answer

The concept of an efficient market implies that prices of financial assets, such as stocks, reflect all available information. This means that it is difficult for investors to consistently earn abnormal returns by using information that is already publicly available. Therefore, it is not possible to beat the market by randomly selecting stocks, and an investor must use some combination of fundamental analysis and/or technical analysis to identify mispricings in the market. Choice A is incorrect because the market beta of different stocks may vary depending on their individual characteristics. Choice B is incorrect because a carefully selected portfolio, based on sound analysis and research, is expected to outperform a random selection of stocks. Choice D is incorrect because stock prices are expected to fluctuate in response to changes in the market and company-specific news.

What Does the Concept of an Efficient Market Imply