Which one of the following is most indicative of a totally efficient stock market?
A)extraordinary returns earned on a routine basis
B)positive net present values on stock investments over the long-term
C)zero net present values for all stock investments
D)arbitrage opportunities which develop on a routine basis
E)realizing negative returns on a routine basis

Question

Quizplus · Accepted Answer

A totally efficient stock market would mean that all stock investments have zero net present values. This is because any stock that is undervalued or overvalued would quickly be corrected by the market, resulting in a zero net present value for investors. Extraordinary returns, arbitrage opportunities, and negative returns are all indicators of market inefficiencies. Positive net present values over the long-term may indicate good investment opportunities, but it does not necessarily mean that the market is totally efficient.

Which One of the Following Is Most Indicative of a Totally