Which statement is correct?
A) It is much easier to judge whether the absolute level of stock prices is correct rather than whether their relative levels are correct.
B) It is much easier to judge whether relative stock prices are correct than to judge whether their absolute level is correct.
C) Most tests of market efficiency are concerned with the absolute level of stock prices.
D) If relative prices are correct, then absolute prices must be correct also.

Question

Quizplus · Accepted Answer

It is easier to judge the relative levels of stock prices because it involves comparing the price of one stock to another or to a benchmark index, rather than trying to determine an absolute value for each stock. Most tests of market efficiency also focus on relative prices rather than absolute prices. Option A and D are incorrect as they suggest that evaluating the absolute level of stock prices is easier or automatically correct if relative prices are correct, which is not necessarily true. Option C is also incorrect as most tests of market efficiency focus on relative prices rather than absolute prices.

Which Statement Is Correct