If the weak form of market efficiency holds then:
A)fundamental analysis is useless.
B)stock prices reflect insider trading.
C)stock price changes follow a random walk.
D)all of the above.

Question

Quizplus · Accepted Answer

If the weak form of market efficiency holds, it means that past stock prices and trading volume already reflect all publicly available information, including historical price and volume data, economic and financial news, and analysts' recommendations. Therefore, it is difficult to consistently earn excess returns using technical analysis or past financial data. However, insider trading and fundamental analysis may not be fully reflected in stock prices yet, as they involve private information that is not available to the public. So, option A and B are incorrect. Option C states that stock price changes follow a random walk, which means that future stock prices are unpredictable based on past price patterns. This implies that investors cannot consistently beat the market based on publicly available information alone. Therefore, C is the correct answer.

If the Weak Form of Market Efficiency Holds Then