Market Efficiency: Forms and Implications
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Questions and Answers

What does market efficiency refer to?

  • The degree to which prices in financial markets are affected by random events
  • The degree to which prices in financial markets are influenced by emotional decisions
  • The degree to which prices in financial markets are controlled by government regulations
  • The degree to which prices in financial markets reflect all available information (correct)

    • Which form of market efficiency suggests that current prices fully reflect all past trading information?

  • Weak Form Efficiency (correct)
  • Strong Form Efficiency
  • Moderate Form Efficiency
  • Semi-Strong Form Efficiency

    • What is the implication of semi-strong form efficiency on fundamental analysis?

  • It is not effective in consistently outperforming the market (correct)
  • It is sometimes effective in consistently outperforming the market
  • It is a highly effective way to consistently outperform the market
  • It is only effective for short-term investments

    • What is reflected in the current prices in strong form efficiency?

    <p>All information, both public and private</p> Signup and view all the answers

    What is the consequence of technical analysis in weak form efficiency?

    <p>It is not effective in consistently outperforming the market</p> Signup and view all the answers

    What does strong form efficiency imply about the ability to consistently outperform the market?

    <p>It is not possible to consistently outperform the market with any information</p> Signup and view all the answers

    What is a characteristic of arbitrage opportunities in an efficient market?

    <p>They are quickly eliminated by market participants.</p> Signup and view all the answers

    In an efficient market, which of the following is true about price movements?

    <p>Prices move randomly.</p> Signup and view all the answers

    What is the implication of active trading in an efficient market?

    <p>It is unlikely to be successful over the long term.</p> Signup and view all the answers

    What is the result of efficient allocation of resources in an efficient market?

    <p>Optimal allocation of resources across the economy.</p> Signup and view all the answers

    What is a limitation of the concept of market efficiency?

    <p>It fails to account for behavioral biases and market frictions.</p> Signup and view all the answers

    What is the role of the concept of market efficiency in financial markets?

    <p>It plays a crucial role in understanding and analyzing financial markets.</p> Signup and view all the answers

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