An implication of the efficient market hypothesis is that ________.
A) high-beta stocks are consistently overpriced
B) low-beta stocks are consistently overpriced
C) nonzero alphas will quickly disappear
D) growth stocks are better buys than value stocks

Question

Quizplus · Accepted Answer

The efficient market hypothesis suggests that all relevant information is already reflected in stock prices, making it difficult for investors to consistently outperform the market. This implies that any deviations from the market should be temporary, which means that any nonzero alpha (the excess return of a stock over its benchmark index) will quickly disappear. Therefore, choice C is the correct answer. Choices A, B, and D are all incorrect because the efficient market hypothesis does not assert that high-beta stocks are overpriced or that growth stocks are better buys than value stocks.

An Implication of the Efficient Market Hypothesis Is That ________