Which of the following is an implication of efficient markets?

Question

Quizplus · Accepted Answer

Efficient markets theory suggests that stock prices reflect all publicly available information, meaning that it is very difficult for an investor to consistently outperform the market. Therefore, it may be wise for investors to minimize transaction costs by employing a buy-and-hold strategy (A). Additionally, since higher returns usually come with higher risk, the only way an investor can expect to increase his expected return is to increase the risk of his portfolio (B). Therefore, both statement A and B are true implications of efficient markets theory. Choice C is not true, as efficient markets theory suggests that all investors have essentially equal access to information and the ability to earn market returns.

Which of the Following Is an Implication of Efficient Markets