Suppose that a lawyer works for a firm that advises corporate firms planning to sue other corporations for antitrust damages.He finds that he can "beat the market" by short selling the stock of firms that will be sued.This hypothetical finding would violate the
A)weak-form hypothesis of market efficiency.
B)semistrong form hypothesis of market efficiency.
C)strong-form hypothesis of market efficiency.
D)none of the hypotheses of market efficiency.

Question

Quizplus · Accepted Answer

The strong-form hypothesis of market efficiency suggests that all information, including inside information, is already reflected in stock prices. If the lawyer can consistently profit by short selling the stock of firms that will be sued, it implies that he has access to non-public information, which would violate the strong-form hypothesis of market efficiency.

Suppose That a Lawyer Works for a Firm That Advises