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Question

In a capital market, which is efficient informationally:

A Securities’ prices reflect new information quickly Correct Answer Incorrect Answer
B Investors react to new information and make decisions quickly Correct Answer Incorrect Answer
C Active investment strategies generate more profits than passive investments Correct Answer Incorrect Answer
D Both b and c Correct Answer Incorrect Answer
E All of the above Correct Answer Incorrect Answer

Solution

In an efficient market, new information is quickly reflected in the prices of securities. Active investment strategies will underperform in efficient markets because there are more costs involved in undertaking them and passive investment strategies will generate consistent profits without incurring the additional costs.

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