Ruth has taken two approaches to trading stocks. First, she found what she thought was a repetitive pattern in ABC Co.'s historical prices. Secondly, she found that using the financial statements of LKO Co. to compute changes in the return on equity would help predict the future stock price for that firm. She traded using both strategies. Ruth earned excess profit on market is at least __________ efficient but less than __________ efficient.
A) weak-form; mild-form
B) mild-form; semi-strong form
C) weak-form; semi-strong form
D) semi-strong form; full-form
E) semi-strong form; strong-form

Question

Quizplus · Accepted Answer

Ruth earned excess profits using both technical analysis (finding repetitive patterns in historical prices) and fundamental analysis (using financial statements to predict future stock price). This suggests that the market is at least weak-form efficient (meaning past stock prices and patterns cannot be used to consistently earn excess profits), but is not necessarily semi-strong (where all public information is immediately reflected in the stock price) or strong-form efficient (where all public and private information is immediately reflected in the stock price). Therefore, the best choice is C, which states that the market is at least weak-form efficient but not necessarily semi-strong form efficient.

Ruth Has Taken Two Approaches to Trading Stocks