A market is efficient if:
A) investors are able to earn profits by trading on information.
B) it adjusts steadily to new information.
C) share prices fully reflect available information about the shares.
D) available information can be used to earn returns beyond those that compensate for the risk involved.

Question

Quizplus · Accepted Answer

An efficient market is one where the prices of securities reflect all available information about them. This means that it is impossible to consistently earn abnormal returns by trading on this information. Therefore, options A and D are incorrect as they imply the ability to earn profits beyond what is expected in an efficient market. Option B is not necessarily a characteristic of an efficient market, as it may take time for information to be fully incorporated into prices.

A Market Is Efficient If