Which of the following statements is false?
A) An expected news event should have no effect on asset prices in an efficient market.
B) If a market is semi-strong efficient it is also weak-form efficient.
C) The total risk of an asset indirectly affects the market's return expectations for that asset.
D) An unexpected news event has an effect on the price of an asset

Question

Quizplus · Accepted Answer

Statement A is true according to the efficient market hypothesis, which predicts that all public information is incorporated into asset prices. Therefore, expected news events are already reflected in asset prices, and there should be no significant impact on prices when the news is announced.

Statement C is also true as the total risk of an asset includes both systematic and unsystematic risk, which can affect the return expectations for that asset in the market.

Statement D is also true as unexpected news events can lead to changes in supply and demand for an asset, and therefore, influence its price.

However, statement B is false. Weak-form efficiency only considers historical prices and returns to predict future asset prices. Semi-strong efficiency, on the other hand, takes into account all publicly available information to predict asset prices. Therefore, it is possible for a market to be semi-strong efficient without being weak-form efficient.

Which of the Following Statements Is False