Which of the following is most correct?
A)In an efficient market, investors will buy overvalued stock which will drive its price down.
B)In an efficient market, investors will sell undervalued stock which will drive its price down.
C)In an efficient market, investors will sell overvalued stock which will drive its price down.
D)None of these statements are correct.

Question

Quizplus · Accepted Answer

In an efficient market, investors will sell overvalued stocks because they believe that the price of the stock is higher than its intrinsic value. This selling pressure will drive the price down to its intrinsic value, thereby correcting the overvaluation. Option A is incorrect because investors would not buy overvalued stock since they believe it to be overvalued while option B is incorrect because selling undervalued stock would not result in a drop in price. Option D is incorrect because an efficient market does exist, and it is possible for investors to trade accordingly.

Which of the Following Is Most Correct