Which of the following statements about market efficiency is most correct?

Question

Quizplus · Accepted Answer

The correct statement about market efficiency is that if a market is efficient, then you should not expect to earn returns greater than what the market suggests the return should be. This is because in an efficient market, all available information is already reflected in the market price, making it difficult to consistently outperform the market. Option A is incorrect because earning a return greater than what the market suggests does not necessarily mean the market is inefficient. It could be due to luck or individual skill. Option B is also incorrect because the concept of market efficiency applies equally over different time horizons. Option D is not correct because only option C is a correct statement. If a market is efficient, then it is unlikely that an investor can consistently earn returns greater than what the market suggests the return should be. However, occasional mispricing and arbitrage opportunities do exist in even the most efficient markets. Therefore, it is possible to earn returns greater than what the market suggests, but it is not necessarily a sign of inefficiency. Choice A is incorrect because occasional outperforming returns do not necessarily indicate market inefficiency. Choice B is incorrect because the power of market efficiency holds true both over long and short time horizons. Choice D is incorrect because only Choice C is true.

Which of the Following Statements About Market Efficiency Is Most