The market price of a stock moves or fluctuates daily. This fluctuation is:
A) inconsistent with the semistrong efficient market hypothesis because prices should be stable.
B) inconsistent with the weak form efficient market hypothesis because all past information should be priced in.
C) consistent with the semistrong form of the efficient market hypothesis because as new information arrives daily prices will adjust to it.
D) consistent with the strong form because prices are controlled by insiders.
E) None of these.

Question

Quizplus · Accepted Answer

The semistrong form of the efficient market hypothesis states that stock prices adjust to new information quickly and efficiently. The fluctuation in stock prices on a daily basis is consistent with this form of the hypothesis as new information is constantly being incorporated into the price. The other choices are not applicable as they either contradict the hypothesis or are irrelevant.

The Market Price of a Stock Moves or Fluctuates Daily