Which of the following is most correct?
A)In an efficient market, investors will buy overvalued stock which will drive its price down.
B)In an efficient market, investors will sell undervalued stock which will drive its price down.
C)In an efficient market, investors will sell overvalued stock which will drive its price down.
D)none of these choices are complete.

Question

Quizplus · Accepted Answer

In an efficient market, investors will sell overvalued stock which will drive its price down. This is because in an efficient market, all available information is already reflected in the stock's price. Therefore, if a stock is overvalued, it means that investors have already factored in information beyond what is available, and are willing to pay more than the stock is worth. In this case, rational investors will sell the stock, causing its price to drop until it reaches a fair level based on its actual value.

Which of the Following Is Most Correct