Which of the following statements is correct?
A)If the market is strong-form efficient it must also be weak-form efficient and semi-strong efficient.
B)There is evidence to suggest that the market is strong-form efficient because corporate insiders have made extraordinary profits by trading on inside information.
C)The Efficient Market Hypothesis states that security prices will be based on their expected return.
D)None of these statements is correct.

Question

Quizplus · Accepted Answer

If the market is strong-form efficient, it means all public and private information is already reflected in stock prices. Therefore, it must also be weak-form efficient (only past stock prices are reflected in current stock prices), and semi-strong efficient (all publicly available information is reflected in stock prices). Choice B is incorrect because if insiders are making extraordinary profits, it suggests that the market is NOT strong-form efficient. Choice C is incorrect because the Efficient Market Hypothesis states that security prices will reflect all available information, not just expected return.

Which of the Following Statements Is Correct