Which statement regarding the Efficient Markets Hypothesis is true?

Question

Quizplus · Accepted Answer

The Efficient Markets Hypothesis suggests that stock prices reflect all publicly available information at any given time, which is referred to as semistrong-form market efficiency. This means that private information, such as insider knowledge, may not be fully priced into stock valuations. Option A is incorrect because the Efficient Markets Hypothesis suggests that stock prices are always fairly priced, making it impossible to consistently profit off of undervalued or overvalued stocks. Option B is partially correct, but only in the case of weak-form market efficiency, which suggests that past stock prices cannot be used to predict future prices. Option C is incorrect as the Efficient Markets Hypothesis only requires the aggregate behavior of investors to be rational, not every individual investor.

Which Statement Regarding the Efficient Markets Hypothesis Is True