If the efficient market hypothesis holds,investors should expect:
A)to always be able to pick stocks that will outperform the market averages.
B)to receive a fair price for their securities.
C)to earn only a normal return.
D)Both A and B.
E)Both B and C.

Question

Quizplus · Accepted Answer

The efficient market hypothesis states that all information regarding a security is already reflected in its price. Therefore, investors cannot consistently pick stocks that will outperform the market averages as any available information has already been factored into stock prices. Investors can expect to receive a fair price for their securities in an efficient market, but they can only earn a normal return as they cannot outperform the market averages. The best choice is E, as it correctly identifies the two expectations that investors can have in an efficient market: receiving a fair price for their securities and earning only a normal return.

If the Efficient Market Hypothesis Holds,investors Should Expect