Which of the following is correct concerning stock market irrationality?
A)Bubbles could arise,in part,because the price that people pay for stock depends on what they think someone else will pay for it in the future.
B)Economists almost all agree that the evidence for stock market irrationality is convincing and the departures from rational pricing are important.
C)Some evidence for the existence of market irrationality is that informed and presumably rational managers of mutual funds generally beat the market.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Bubbles arise because people expect to sell at a higher price than they bought the stock, based on their belief that someone else in the future will pay even more for it. This is an example of market irrationality.

Answer: C 
 If the market were perfectly efficient, there would be no chance for managers to outperform the market on a regular basis. The fact that some managers do beat the market suggests that there are instances of irrational pricing in the market.

Which of the Following Is Correct Concerning Stock Market Irrationality