Final answer:
The theory that assumes stock price movements are purely random is known as the Efficient Market Hypothesis (option B), indicating that it's impossible to consistently predict or beat the market as all known information is already incorporated into stock prices.
Step-by-step explanation:
An investment theory based on the assumption that stock price movements are purely random is called the Efficient Market Hypothesis (EMH). This theory posits that stock prices fully reflect all available information, making it impossible to consistently achieve higher returns than the overall market through expert stock selection or market timing. The EMH suggests that because stock prices adjust so quickly to information, any effort to outperform the market is futile since all known information is already factored into the prices.
Stock analysts and individual investors spend a significant amount of time analyzing company prospects, but according to the EMH, it is the unexpected news that cannot be predicted which primarily drives the stock price changes.