Joe bought a stock at $57 per share.The price promptly fell to $55.Joe held on to the stock until it again reached $57 and then he sold once he had eliminated his loss.If other investors do the same to establish a trading pattern this would contradict _______.
A) the strong-form EMH
B) the weak-form EMH
C) technical analysis
D) the semistrong-form EMH

Question

Quizplus · Accepted Answer

The scenario described is an example of the "buy low, sell high" strategy, which contradicts the weak-form EMH. The weak-form EMH states that stock prices already reflect all historical information, so it is not possible to consistently profit from strategies based on past prices or trading patterns. However, if investors were able to consistently profit from this strategy, it would imply that stock prices are not fully reflective of historical information, contradicting the weak-form EMH.

Joe Bought a Stock at $57 Per Share