An important lesson from the Black Monday Crash of 1987 and the tech crash of 2000 is that
A) factors other than market fundamentals affect stock prices.
B) the strong version of the efficient market hypothesis, that stock prices reflect the true fundamental value of securities, is correct.
C) market psychology has little if any effect on stock prices.
D) there is no such thing as a rational bubble.

Question

Quizplus · Accepted Answer

The Black Monday Crash and the tech crash both demonstrated that factors other than market fundamentals can affect stock prices, such as market psychology and herd behavior. This contradicts the strong version of the efficient market hypothesis, which suggests that stock prices always reflect the true fundamental value of securities. Additionally, both crashes showed that bubbles can form, indicating that there are instances where market behavior is not entirely rational.

An Important Lesson from the Black Monday Crash of 1987