Financial managers must be cognizant of market efficiency because:
A)manipulating earnings by accounting changes does not fool the market.
B)timing security sales is futile because without private information the current price reflects all known information.
C)there is limited price pressure from any large sale of stock depressing prices only momentarily before recovering to prior levels.
D)All of the above.
E)None of the above.

Question

Quizplus · Accepted Answer

Market efficiency means that stock prices reflect all publicly available information. Therefore, manipulating earnings through accounting changes is unlikely to have a significant impact on the stock price because investors can see through the manipulation. Additionally, attempting to time security sales based on private information is also unlikely to be successful because the current stock price already reflects all publicly available information. Finally, market efficiency means that any large sale of stock will only have a temporary effect on prices before they recover to prior levels, so financial managers should not be overly concerned about short-term price movements.

Financial Managers Must Be Cognizant of Market Efficiency Because