Which one of the following statements is correct concerning market efficiency?
A) Real asset markets are more efficient than financial markets.
B) If a market is efficient, arbitrage opportunities should be common.
C) In an efficient market, some market participants will have an advantage over others.
D) A firm will generally receive a fair price when it issues new shares of stock if the market is efficient.
E) New information will gradually be reflected in a stock's price to avoid any sudden price changes in an efficient market.

Question

Quizplus · Accepted Answer

In an efficient market, prices reflect all available information. Therefore, when a firm issues new shares, the price at which these shares are sold should be fair, meaning it accurately reflects the firm's value based on the available information. This is a fundamental principle of market efficiency, which posits that it's impossible to consistently achieve higher returns on a risk-adjusted basis than the market overall because prices already incorporate all known information.

Which One of the Following Statements Is Correct Concerning Market