Assume that markets are semistrong-form efficient. Which of the following statements is most correct?
A) All stocks should have the same expected return.
B) All stocks should have the same realized return.
C) Past stock prices can be successfully used to forecast future stock returns.
D) Answers a and c are correct.
E) None of the answers above is correct.

Question

Quizplus · Accepted Answer

Semistrong-form efficiency implies that all publicly available information is already reflected in the current market prices. However, it does not mean that all stocks should have the same expected or realized return. Different stocks will have different risk factors, industry dynamics, growth potential, etc., which will impact their expected returns. Moreover, past stock prices alone cannot be successfully used to forecast future stock returns in a semistrong-form efficient market.

Assume That Markets Are Semistrong-Form Efficient