According to the efficient markets hypothesis, changes in stock prices are:
A) driven by irrational waves of optimism.
B) driven by irrational waves of pessimism.
C) rational reflections of underlying economic fundamentals.
D) possible to predict from available information.

Question

Quizplus · Accepted Answer

The efficient markets hypothesis suggests that changes in stock prices are rational reflections of underlying economic fundamentals. The hypothesis assumes that all relevant information about a company or market is already reflected in the stock price, making it impossible to consistently predict future movements. Therefore, options A and B, which highlight irrational waves of optimism or pessimism, are not consistent with the efficient markets hypothesis. Option D, which suggests that stock prices can be predicted from available information, is also inconsistent with the efficient markets hypothesis.

According to the Efficient Markets Hypothesis, Changes in Stock Prices