The only way for behavioral patterns to persist in prices is if ________.
A) markets are not weak-form efficient
B) there are limits to arbitrage activity
C) there are no significant trading costs
D) market psychology is inconsistent over time

Question

Quizplus · Accepted Answer

Behavioral patterns in prices can persist if there are limits to arbitrage activity, which means that it may not be possible for rational investors to quickly and easily exploit market inefficiencies. This can allow pricing anomalies to persist, even in relatively efficient markets. Market inefficiencies and behavioral patterns may still exist even in weak-form efficient markets (choice A), and significant trading costs (choice C) could potentially limit trading activity but would not necessarily lead to the persistence of behavioral patterns. Market psychology may be inconsistent over time (choice D), but this alone would not necessarily lead to persistent behavioral patterns in prices.

The Only Way for Behavioral Patterns to Persist in Prices