In an efficient market:

Question

Quizplus · Accepted Answer

In an efficient market, all available information is quickly and accurately reflected in asset prices. Therefore, consistent abnormal returns (above-average returns that cannot be explained by the asset's risk level) are not possible for investors. This is known as the efficient market hypothesis. However, the compensation for risk borne by investors is fair in an efficient market as it is reflected in the asset prices. Option A is incorrect because NPV only pertains to the value of cash flows based on a given discount rate, not market efficiency. Option D is incorrect because information can flow through many channels, including financial news sources and direct communication from companies.

In an Efficient Market