Which of the following is not consistent with the efficient market hypothesis?
A)Stock prices should follow a random walk.
B)Index funds should typically outperform highly managed funds.
C)News has no effect on stock prices.
D)There is little point in spending many hours studying the business pages looking for undervalued stocks.

Question

Quizplus · Accepted Answer

The efficient market hypothesis (EMH) posits that all available information is already reflected in stock prices, meaning that it's impossible to consistently achieve higher returns than the market average through stock selection or market timing. However, EMH does not suggest that news has no effect on stock prices. On the contrary, it asserts that prices adjust quickly to new information, so when news is released, stock prices can change to reflect this new information. Choices A, B, and D are consistent with EMH, as they imply that exploiting market inefficiencies is difficult or impossible for most investors.

Which of the Following Is Not Consistent with the Efficient