A finding that _________ would provide evidence against the semistrong form of the efficient market theory.
A)low P/E stocks tend to have positive abnormal returns
B)trend analysis is worthless in determining stock prices
C)one can consistently outperform the market by adopting the contrarian approach exemplified by the reversals phenomenon
D)A and B
E)A and C

Question

Quizplus · Accepted Answer

Choice A states that low P/E stocks tend to have positive abnormal returns, which implies that there is a predictable pattern in stock prices. This contradicts the semistrong form of the efficient market theory, which suggests that all publicly available information is already reflected in stock prices, and thus, no patterns can be consistently exploited for abnormal returns. 
Choice C states that one can consistently outperform the market by adopting the contrarian approach exemplified by the reversals phenomenon. If this were true, it would indicate that there is some predictable pattern in stock prices that can be exploited for consistent abnormal returns, which again, contradicts the semistrong form of the efficient market theory. 
Therefore, options A and C contradict the semistrong form of the efficient market theory, and, hence, E is the correct choice.

A Finding That _________ Would Provide Evidence Against the Semistrong