Strong-form efficiency implies that mutual fund managers should
A)buy the index that maximizes diversification and minimizes the cost of managing portfolios.
B)actively seek underperforming stocks and buy them.
C)generally earn superior returns each year.
D)attempt to earn superior returns by using technical analysis.

Question

Quizplus · Accepted Answer

Strong-form efficiency implies that all information, including insider information, is already reflected in stock prices. Therefore, it is difficult for mutual fund managers to consistently outperform the market by using their superior knowledge or by using technical analysis. The best strategy for mutual fund managers under strong-form efficiency is to buy the index that maximizes diversification and minimizes the cost of managing portfolios. This approach is known as passive management.

Strong-Form Efficiency Implies That Mutual Fund Managers Should