If the weak form of market efficiency holds, then
A)technical analysis is useless.
B)technical analysis is useless and stock prices reflect all information contained in past prices.
C)technical analysis is useless, stock prices reflect all information contained in past prices, and stock price returns follow a random walk.
D)technical analysis is useless and stock price returns follow a random walk.

Question

Quizplus · Accepted Answer

The weak form of market efficiency implies that all information contained in past prices is already reflected in current stock prices, making technical analysis useless. It also implies that stock price returns follow a random walk, meaning that past returns cannot be used to predict future returns. Therefore, option C includes both of these characteristics and is the best choice.

If the Weak Form of Market Efficiency Holds, Then