In an efficient market the correlation coefficient between stock returns for two nonoverlapping time periods should be
A) positive and large.
B) positive and small.
C) zero.
D) negative and small.
E) negative and large.

Question

Quizplus · Accepted Answer

In an efficient market, prices fully reflect all available information at any point in time, meaning that past prices or returns cannot predict future prices or returns. Therefore, the correlation coefficient between stock returns for two nonoverlapping time periods should be zero, indicating no linear relationship.

In an Efficient Market the Correlation Coefficient Between Stock Returns