A market is efficient if:
A) investors are able to earn profits by trading on information.
B) it takes time for market to adjust to new information.
C) share prices fully reflect available information about the shares.
D) available information can be used to earn returns beyond those that compensate for the risk involved.

Question

Quizplus · Accepted Answer

Market efficiency refers to the degree to which the prices of assets (such as stocks) reflect all available information. A market is said to be efficient if the prices of securities quickly and accurately reflect all information that could be used to determine an asset's true underlying value. Therefore, option C, which states that share prices fully reflect available information about the shares, is the best choice. Options A, B, and D all describe scenarios where investors can earn returns by taking advantage of inefficiencies in the market, which suggests the market is not fully efficient.

A Market Is Efficient If