The market price of a stock tends to fluctuate throughout every trading day.This fluctuation is:
A)inconsistent with the semistrong form of the efficient market hypothesis because prices should be stable.
B)inconsistent with the weak form of the efficient market hypothesis because all past information should already be included in the price.
C)consistent with the semistrong form of the efficient market hypothesis because daily prices should adjust as new information becomes available.
D)consistent with the strong form of market efficiency because prices are controlled by insiders.
E)a strong indicator that abnormal profits can be realized.

Question

Quizplus · Accepted Answer

The semistrong form of the efficient market hypothesis states that stock prices adjust quickly and accurately to newly available public information. Therefore, the fluctuation in the market price of a stock can be seen as consistent with this form of efficiency. Option A is incorrect because according to the semistrong form prices should adjust, not be stable. Option B is incorrect because the weak form only considers past price data, not new information. Option D is incorrect because the strong form assumes that even insiders do not have an advantage in predicting price movements. Option E is incorrect because the efficient market hypothesis suggests that abnormal profits cannot be consistently realized in the long run, which contradicts the idea of market fluctuations indicating profit opportunities.

The Market Price of a Stock Tends to Fluctuate Throughout