Amy uses two approaches to trading stocks.First,she trades on what she believes is a repetitive pattern as seen in Delta Co's historical prices.Secondly,she analyzes the financial statements of The Atwater Co.to compute changes in the return on equity as a predictor of future stock prices for that firm.She trades based on both strategies.Amy earns excess profits on her return on equity strategy but not on her historical prices strategy.This suggests that the market is at least _____ efficient but less than _____ efficient.
A)weak-form; mild-form
B)mild-form; semistrong-form
C)weak-form; semistrong-form
D)semistrong-form; full-form
E)semistrong-form; strong-form

Question

Quizplus · Accepted Answer

Amy's success in using fundamental analysis to predict changes in return on equity and future stock prices at The Atwater Co. suggests that the market is not completely efficient in incorporating all publicly available information, indicating that it is not strong-form efficient. However, her lack of success in trading based on historical prices of Delta Co. suggests that the market is efficient in terms of utilizing past price information, indicating that it is at least weak-form efficient. Therefore, the market must be at least weak-form efficient but less than semistrong-form efficient, making option C the correct answer.

Amy Uses Two Approaches to Trading Stocks