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 is correct.

Question

Quizplus · Accepted Answer

In an efficient market, investors will sell overvalued stock because they will recognize that the stock's price is higher than its intrinsic or true value. As a result, they will sell the stock, causing its price to go down. In contrast, if investors buy overvalued stock (as in option A), they will be paying more than the true value of the stock and may incur losses in the long run. Similarly, if investors sell undervalued stock (as in option B), they will be selling the stock at a lower price than its true value, leading to missed profit opportunities. Option D is incorrect because option C accurately describes the behavior of rational investors in an efficient market.

Which of the Following Is Most Correct