The efficient markets hypothesis implies that
A)building a portfolio based on a published list of the "most respected" companies is likely to produce a better-than-average return.
B)if a stock rose in price last year,it is likely to rise in price this year.
C)managed mutual funds should generally outperform indexed mutual funds.
D)None of the above are correct.

Question

Quizplus · Accepted Answer

The efficient markets hypothesis asserts that all available information is already reflected in stock prices, and so it is not possible to consistently earn above-average returns by picking "most respected" companies or by trying to predict future price movements based on past performance. Furthermore, since market efficiency implies that prices are essentially random and unpredictable in the short term, it is not clear whether managed mutual funds will outperform indexed mutual funds over time. Therefore, none of the choices presented are correct under the efficient markets hypothesis.

The Efficient Markets Hypothesis Implies That