Which of the following individuals is using information outsidethe efficient markets hypothesis?
Someone who:
A)has information about the aging U.S.population and expects stock for companies that cater to senior citizens to increase in
Value.
B)reads in the newspaper about a merger between two profitable firms and expects the stock prices for these
Companies to rise.
C)while auditing a dishonest company realizes that its profit estimates are greatly inflated and immediately sells her stock in
The company.
D)hears a rumor that a top bank may be in trouble, and decides to sell his stock in that company.

Question

Quizplus · Accepted Answer

The efficient markets hypothesis (EMH) posits that all available information is already reflected in stock prices. Therefore, someone acting on public information (like aging population trends, news of mergers, or rumors) is operating within the bounds of EMH. However, someone using insider information obtained through their unique position (e.g., discovering inflated profit estimates while auditing a company) is using information not accounted for by the market, thus operating outside the EMH.

Which of the Following Individuals Is Using Information Outsidethe Efficient