Question

9. efficient markets hypothesis which of the following statements are consistent with the efficient markets hypothesis? check all that apply. an average person in the market will believe that all stocks are fairly valued. it is worth hiring a financial adviser to find cheap stocks to purchase. the stock market is informationally efficient.

Answer 1

The Efficient Markets Hypothesis suggests that stock prices reflect all available information, so stocks are fairly valued and the stock market is informationally efficient. Hiring a financial adviser to find cheap stocks is not consistent with EMH, as it implies that stocks can be undervalued, which EMH denies.

Step-by-step explanation:

The Efficient Markets Hypothesis (EMH) posits that the stock market is informationally efficient, meaning that prices of securities already reflect all available information.

According to this theory, it is difficult for investors, including financial advisers, to outperform the market through stock selection or market timing because any new information that could affect a company's stock price is quickly incorporated into the stock price.

Therefore, consistent with the Efficient Markets Hypothesis:

• An average person in the market will believe that all stocks are fairly valued because information is rapidly disseminated and incorporated into stock prices.
• The stock market is informationally efficient, with stock prices reflecting all available information at any given time.

However, the following statement is not consistent with the Efficient Markets Hypothesis:

• It is worth hiring a financial adviser to find cheap stocks to purchase, because if markets are truly efficient, no stocks are consistently undervalued or overvalued in relation to their true worth.

Answer 2

The Efficient Markets Hypothesis supports the belief that all stocks are fairly valued and that the stock market is informationally efficient, but it challenges the idea that hiring a financial adviser to find cheap stocks is beneficial.

Step-by-step explanation:

The Efficient Markets Hypothesis (EMH) posits that it is impossible to beat the market because all available information is already reflected in stock prices. Therefore, stocks always trade at their fair value, making it impossible to purchase undervalued stocks or sell them at inflated prices systematically.

Given this context, the statement that an average person in the market will believe that all stocks are fairly valued is consistent with the EMH. The belief that it is worthwhile to hire a financial adviser to find cheap stocks to purchase may be inconsistent with the EMH, as the hypothesis suggests that finding undervalued stocks consistently is not possible due to market efficiency. Lastly, the statement that the stock market is informationally efficient aligns well with the core tenets of the EMH, as it implies that all known information is already factored into stock prices.