CS Executive · Corporate Accounting and Financial Management · Security Analysis
Which statement about the Efficient Market Hypothesis in its weak form is correct?
In weak-form efficiency, current prices already reflect all past price and trading volume data, so technical analysis cannot consistently earn abnormal returns. Fundamental analysis might still help, since public information is not fully reflected. Reflecting all private information is the strong form.
- ACurrent prices reflect all past price and volume information, so technical analysis cannot yield abnormal returnsCorrect
- BCurrent prices reflect all public and private information, so no analysis can help
- CPrices reflect only publicly announced financial statements, so technical analysis works
- DPrices are always below intrinsic value in the weak form
Explanation
Weak-form efficiency says past prices and volumes are already in current prices, so charting cannot earn abnormal returns. The second option describes strong form; the third describes semi-strong form wrongly linked to technical analysis.
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