Most studies of stock market efficiency suggest that the stock market is highly
ID: 2731980 • Letter: M
Question
Most studies of stock market efficiency suggest that the stock market is highly efficient in the weak-form and reasonably efficient in the semistrong-form. Assuming these findings are correct, which of the following statements is CORRECT?
A. You have been tracking a stock’s price over the past 6 months, and you note that this particular stock has tended to rise sharply immediately after it has fallen for three days. You can use this information to devise a trading strategy that will help you beat the market.
B. Information you read in The Wall Street Journal cannot be used to select stocks that are likely to produce above-average rates of return.
C. If you apply financial analysis properly, you can use information provided in companies’ annual reports to earn above-average returns.
D. You notice that a company’s stock price always seems to swing back and forth--whenever it by 10% or more, it seems to recover and to eventually exceed its former high. Since its price has fallen during the past 2 months, now is a great time to buy it before it takes off again.
E. Even if you possess insider information, you cannot use this information to earn above-average returns because such information will already be reflected in stock prices.
Explanation / Answer
Answer :- B
Information you read in The Wall Street journal cannot be used to select stocks that are likely to produce above average rates of return.