An investment theory based on the assumption that stock price movements are purely random is called the ____________ theory.
A) fundamental
B) technical
C) efficient market
D) primary
E) market

Question

Quizplus · Accepted Answer

The efficient market theory posits that all available information about a stock is already reflected in its current price, and that stock price movements are therefore random and unpredictable. This theory underlies the practice of passive investing, where investors simply buy and hold a diversified portfolio of stocks rather than trying to actively pick winners and losers. The other answer choices (fundamental, technical, primary, and market) refer to other investment theories and strategies that are not predicated on the assumption of random price movements.

An Investment Theory Based on the Assumption That Stock Price