High-frequency trading involves scanning the latest news and stock quotes with high-tech computers and using the information to trade stocks very quickly. Because it is highly automated, it happens a thousand times faster than an eye can blink. Though each trade might make a fraction of a penny, it accounts for about two-thirds of the stock market trading. How does this financing trend reflect the efficient markets hypothesis?
A) Computers ensure public knowledge is instantly embodied in the stock price.
B) Buying and holding stocks allows the investor to circumvent this volatility.
C) Investing in stocks this way has a low risk of failure, thus a low return.
D) The firms that make a lot of money using this strategy are likely just very lucky.

Question

Quizplus · Accepted Answer

High-frequency trading reflects the efficient markets hypothesis by ensuring that public knowledge is instantly incorporated into the stock price through the use of high-tech computers that scan news and stock quotes. This means that the stock market is efficient, as information is quickly reflected in the stock price, making it difficult for investors to consistently earn above-average returns.

High-Frequency Trading Involves Scanning the Latest News and Stock Quotes