Evidence against market efficiency does not include
A) the small-firm effect.
B) technical analysis.
C) excessive volatility.
D) mean reversion.

Question

Quizplus · Accepted Answer

Technical analysis is based on the belief that studying past stock price movements and market data can help predict future price movements. This approach assumes that markets are not fully efficient, as it implies that historical stock prices and patterns can predict future prices. Therefore, technical analysis itself is not evidence against market efficiency; rather, it is a practice that operates under the assumption that markets are not fully efficient. The other options (A, C, D) are phenomena that have been observed in markets and are often cited as evidence against the hypothesis of market efficiency, which posits that asset prices fully reflect all available information.

Evidence Against Market Efficiency Does Not Include