Question

Which of the following most appears to contradict the proposition that the stock market is weakly efficient? a. Over 25% of mutual funds outperform the market on average. b. Insiders earn abnormal trading profits. c. Every January, the stock market earnsabnormal returns. d. Both (c) and (D).

Answer 1

The correct answer is: Both "A" and "C".

Step-by-step explanation:

The weak form efficiency theory of the market states that past price movements on a given asset do not influence or help "predicting" future price action for the same security. Weak efficiency is part of the very influential Efficient Market Hypothesis (EMH).

In that case, to contradict the weak efficiency theory, it must be stated that past price movements influence future price action such as in option "A", where it is said that more than 25% of mutual funds usually outperform the market (predictable event) and option "C", where it is stated that every January the stock market reflects abnormal returns (predictable event).