Assume the market is semistrong-form efficient. The best investment strategy is to:
A) examine the past prices of a stock to determine the trend.
B) invest in an actively managed mutual fund whose manager searches for underpriced stocks.
C) invest in an index fund.
D) examine the financial statements for a company to find stocks that are not selling at intrinsic value.
E) not invest in stocks since the returns will be too low.

Question

Quizplus · Accepted Answer

If the market is semistrong-form efficient, all publicly available information such as financial reports, news, and past prices are already reflected in the stock prices. Therefore, it is unlikely that an individual investor can consistently beat the market by analyzing the public information. In this case, investing in an index fund that follows the market is the most efficient way to gain market returns without incurring additional costs associated with actively managed mutual funds.

Assume the Market Is Semistrong-Form Efficient