Which one of the following statements is correct concerning market efficiency?
A)Markets tend to be more efficient when the frequency of price changes diminishes.
B)If a market is efficient,arbitrage opportunities should be common.
C)In an efficient market,some market participants will have an advantage over others.
D)A firm will generally receive a fair price when it sells newly issued shares of stock.
E)New information will gradually be reflected in a stock's price to avoid spooking investors.

Question

Quizplus · Accepted Answer

In an efficient market, newly issued shares of stock will be priced fairly, as all available information will be reflected in the stock's price. This means that the firm will receive a fair price when it sells newly issued shares of stock. Choices A and E are incorrect because a higher frequency of price changes indicates greater market efficiency, and new information is quickly reflected in stock prices in an efficient market. Choice B is incorrect because in an efficient market, arbitrage opportunities should be rare as prices will already reflect all available information. Choice C is incorrect because an efficient market is one in which all market participants have equal access to information, so no one participant should have an advantage over others.

Which One of the Following Statements Is Correct Concerning Market