Which of the following statements is correct?
A)If the market is strong-form efficient it must also be weak-form efficient and semi-strong efficient.
B)There is evidence to suggest that the market is strong-form efficient because corporate insiders have made extraordinary profits by trading on inside information.
C)The Efficient Market Hypothesis states that security prices will be based on their expected return.
D)none of these choices are complete.

Question

Quizplus · Accepted Answer

If the market is strong-form efficient (meaning that all information, including insider information, is reflected in stock prices), then it must also be weak-form efficient (meaning that past prices and trading volumes are reflected in stock prices) and semi-strong efficient (meaning that all publicly available information is reflected in stock prices). Therefore, statement A is correct. Statement B is incorrect because evidence to the contrary exists (i.e. corporate insiders have been found guilty of insider trading). Statement C is incorrect because the Efficient Market Hypothesis states that security prices will reflect all available information, not just expected return. Therefore, the correct answer is A.

Which of the Following Statements Is Correct