The efficient market hypothesis says that
A)market prices reflect underlying asset values.
B)individual investors should not participate in the financial markets.
C)investors should expect to earn abnormal profits.
D)financial managers can accurately time stock and bond sales.
E)creative accounting can be used to inflate stock prices.

Question

Quizplus · Accepted Answer

The efficient market hypothesis states that market prices reflect the underlying asset values. In other words, the market is efficient in incorporating all available information into current prices, and any new information will be quickly and accurately reflected in the market price. This means that it is difficult for individual investors to consistently outperform the market by identifying mispricings, making it challenging to earn abnormal profits. However, it does not suggest that investors should not participate in financial markets or that financial managers can accurately time stock and bond sales. It also does not provide support for the use of creative accounting to inflate stock prices.

The Efficient Market Hypothesis Says That