Question

In terms of market efficiency, short selling most likely: Group of answer choices leads to excess volatility, which reduces market efficiency. has little effect on market efficiency because short sellers face the risk of unlimited losses. promotes market efficiency by making assets less likely to become overvalued.

Answer 1

promotes market efficiency by making assets less likely to become overvalued.

Step-by-step explanation:

Market efficiency can be defined as a measure of the degree to which prices in a market reflect all available and significant information at a specific period of time. A market is said to be efficient when all information has been incorporated into the prices of goods and services, and as such it is impossible to "beat" the market because there are no overvalued or undervalued stock.

In terms of market efficiency, short selling most likely promotes market efficiency by making assets less likely to become overvalued, because stocks are usually not allowed to be overpriced before selling them.