A situation in which the price of an asset differs from its fundamental market v

Question

A situation in which the price of an asset differs from its fundamental market value

indicates that unexploited profit opportunities exist.

b indicates that unexploited profit opportunities do not exist.

c need not indicate that unexploited profit opportunities exist.

indicates that the efficient market hypothesis is fundamentally flawed.

indicates that unexploited profit opportunities exist.

b indicates that unexploited profit opportunities do not exist.

c need not indicate that unexploited profit opportunities exist.

indicates that the efficient market hypothesis is fundamentally flawed.

Explanation / Answer

A situation in which the price of an asset differs from its fundamental market value need not indicate that unexploited profit opportunities exist. Such situation is called a bubble. Investors have a rational expectations that a higher price for the asset in the future is possible. The bursting of the bubble cannot be predicted and hence it need not indicate that unexploited profit opportunities may exist.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects