Question

Which of the following is not part of the theory of informational efficiency and the efficient markets hypothesis?

A All information relevant to the values of traded securities can be obtained easily and at low cost.
B Buyers and sellers do not act rationally.
C Current market prices reflect all publicly available information.
D The market contains many buyers and sellers.
E All information contained in past price movements is fully reflected in current prices.

Answer 1

The correct answer is letter "B": Buyers and sellers do not act rationally.

Step-by-step explanation:

The Efficient Market Hypothesis is the theory that beating the market is impossible because stocks are already accurately priced and reflect all available information so it is theoretically impossible to make a profit from any trading strategy. As a result, since there is no way to identify bargain stocks or use past price stock movements to predict future prices the only way to earn higher returns than those in an index is by purchasing higher risk investments.

In that case, investors do act rationally but not specifically using a trading strategy.