Which of the following observations would provide evidence against the strong form of efficient market theory?
A)Mutual fund managers do not on average make superior returns.
B)In any year, approximately 50 percent of all pension funds outperform the market.
C)Managers who trade in their own firm's stocks make superior returns.
D)Mutual fund managers do not on average make superior returns and, In any year, approximately 50 percent of all pension funds outperform the market.

Question

Quizplus · Accepted Answer

The strong form of efficient market theory states that all information, whether public or private, is reflected in stock prices. If managers who trade in their own firm's stocks consistently make superior returns, it suggests that they have access to private information that is not reflected in the stock price, which contradicts the strong form of efficient market theory. A and D are evidence against the weak form of efficient market theory, which suggests that all past prices and publicly available information are immediately reflected in stock prices. B is evidence against the semi-strong form of efficient market theory, which suggests that all publicly available information is immediately reflected in stock prices.

Which of the Following Observations Would Provide Evidence Against the Strong