Question

According to the efficient market theory, A. prices of actively traded stocks can only be over-valued in an efficient market B. prices of actively traded stocks do not differ from their true values in an efficient market C. prices of actively traded stocks can be under- or over-valued in an efficient market, and bear searching out D. prices of actively traded stocks can only be under-valued in an efficient market

Answer 1

Answer: B. prices of actively traded stocks do not differ from their true values in an efficient market

Explanation: The efficient market theory postulates that the market is generally efficient with prices of actively traded stocks do not differ from their true values in an efficient market. As a result, prices of securities such as stocks reflect all available information, thus making it needles to engage in stock picking with hopes to "beat the market" on a risk-adjusted basis. This is because the market only reacts to new information.