If securities markets are rational and efficient in the sense that they fully and correctly impound all available information into a company's stock price,then the price will reflect investors' unbiased expectations about the company's future earnings and cash flows.

Question

Quizplus · Accepted Answer

The statement is consistent with the efficient market hypothesis, which suggests that the market values securities based on all publicly available information. This includes information about a company's financial performance and future prospects, which investors use to form their expectations about its earnings and cash flows. Therefore, if the market is rational and efficient, the stock price should reflect these expectations and be an unbiased reflection of the company's value.

If Securities Markets Are Rational and Efficient in the Sense