Which one of the following statements best defines the efficient market hypothesis?
A) Efficient markets limit competition.
B) Security prices in efficient markets remain steady as new information becomes available.
C) Mispriced securities are common in efficient markets.
D) All securities in an efficient market are zero net present value investments.
E) All securities provide the same positive rate of return when the market is efficient.

Question

Quizplus · Accepted Answer

The efficient market hypothesis posits that all available information is already reflected in securities' prices, making it impossible to consistently achieve higher returns than the overall market. Therefore, any new investment in the market would have a net present value of zero, as it is priced perfectly according to all known information. This means investors cannot consistently achieve abnormal returns through market timing or stock selection.

Which One of the Following Statements Best Defines the Efficient