Question

Security markets are efficient EXCEPT for when which of the following exists?

Multiple Choice
Security prices follow the leading indicators such as the DJIA very closely.
The markets absorb large dollar amounts of stock without destabilizing the price.
Prices adjust rapidly to new information.
There is a continuous market where each successive trade is made at a price close to the previous trade.

Answer 1

Security markets are efficient when prices reflect all available information but not when discrepancies between prices and economic indicators suggest inefficiencies.

Step-by-step explanation:

Security markets are considered efficient when prices of securities reflect all available information and adjust rapidly to new information. However, markets are not efficient if there are discrepancies between stock prices and underlying economic indicators, suggesting the presence of market inefficiencies. Examples of efficiency include rapid adjustment of prices to new information or a continuous market with successive trades at similar prices. On the other hand, inefficiency could arise if analysts' expectations and market sentiment drive prices more than actual company performance, creating opportunities for gains based on expectations rather than fundamentals.