Which of the following is the best statement of the efficient markets hypothesis?
A) Investors with information that a stock had a positive net present value (NPV) will buy it, while investors with information that a stock had a negative net present value (NPV) will sell it.
B) Investor's decisions are dependent on complete current information of a firm's cash flows and accurate predictions of future cash flows.
C) Competition between investors works to make the net present value (NPV) of all trading opportunities zero.
D) A share's price is the aggregate of the information of many investors.

Question

Quizplus · Accepted Answer

The efficient markets hypothesis asserts that competition among investors will push the price of a security to its intrinsic value, making the net present value of all trading opportunities equal to zero. This means that all available information is already reflected in the security's price, making it impossible to consistently achieve returns that are better than average. Choice C most accurately captures the essence of the efficient markets hypothesis. Choices A, B, and D all make assertions about what investors do or how security prices are determined, but do not fully capture the implications of the efficient markets hypothesis.

Which of the Following Is the Best Statement of the Efficient