Historically, small-firm stocks have earned higher returns than large-firm stocks. When viewed in the context of an efficient market, this suggests that ________.
A) small firms are better run than large firms
B) government subsidies available to small firms produce effects that are discernible in stock market statistics
C) small firms are riskier than large firms
D) small firms are not being accurately represented in the data

Question

Quizplus · Accepted Answer

According to efficient market theory, higher returns are typically associated with higher risk. Therefore, the fact that small-firm stocks have earned higher returns than large-firm stocks suggests that small firms are riskier than large firms.

Historically, Small-Firm Stocks Have Earned Higher Returns Than Large-Firm Stocks