The concept of market efficiency embodies the idea that:
A)investors want to be compensated with higher returns for all the unsystematic risk they bear,and expect prices to adjust in an instantaneous and unbiased way.
B)all investors are fully informed about the potential returns for a given firm,and therefore the share price is a fair representation.
C)share prices respond to new information in a way that is both unbiased and instantaneous.
D)because holders of debt do not share in the high returns in good economic periods,they require a higher rate of return relative to the risk they bear.

Question

Quizplus · Accepted Answer

Market efficiency suggests that share prices instantly and fairly reflect all available information. Therefore, the price of a security represents its true value and investors cannot consistently achieve above-average returns by using any investment strategy. This means that security prices change in a random and unpredictable way in response to new information. Option A implies that investors require higher returns for bearing higher unsystematic risk, which is not related to market efficiency. Option B suggests that all investors have full information, which is not consistent with the reality of the market. Option D refers to the concept of credit risk and is not related to market efficiency.

The Concept of Market Efficiency Embodies the Idea That