Question

The efficient market hypothesis A. implies that security prices properly reflect information available to investors. B. has little empirical validity. C. implies that active traders will find it difficult to outperform a buy and hold strategy. D. has little empirical validity and implies that active traders will find it difficult to outperform a buy and hold strategy. E. implies that security prices properly reflect information available to investors and that active traders will find it difficult to outperform a buy and hold strategy.

Answer 1

E. Implies that security prices properly reflect information available to investors and that active traders will find it difficult to outperform a buy and hold strategy.

Step-by-step explanation:

Efficient market hypothesis (EMH), is a hypothesis that states that share prices reflect all information and consistent alpha generation is impossible. This term is alternatively known as the efficient market theory.

According to the EMH, stocks always trade at their fair value on exchanges, making it impossible for investors to purchase undervalued stocks or sell stocks for inflated prices. Therefore, it should be impossible to outperform the overall market through expert stock selection or market timing, and the only way an investor can obtain higher returns is by purchasing riskier investments.