Financial managers must be cognizant of market efficiency because:
A) manipulating earnings by accounting changes does not fool the market.
B) timing security sales is futile because without private information the current price reflects all known information.
C) there is limited price pressure from any large sale of stock depressing prices only momentarily before recovering to prior levels.
D) All of these.
E) None of these.

Question

Quizplus · Accepted Answer

Market efficiency means that all known information is already reflected in the current market price. Therefore, earnings manipulation by accounting changes would not fool the market, timing security sales would be futile without private information, and any large sale of stock would only have a momentary impact on prices before they recover to prior levels.

Financial Managers Must Be Cognizant of Market Efficiency Because