Market Efficiency Quiz
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Questions and Answers

Which of the following components reflects the speed at which new information is incorporated into prices in an efficient market?

  • Stock prices
  • Informational efficiency (correct)
  • Market rationality
  • Expected returns
  • What happens to prices in an efficient market when new information is incorporated into them?

  • Prices decrease
  • Prices remain constant
  • Prices increase (correct)
  • Prices become unpredictable
  • Why are stock prices unpredictable in an efficient market?

  • Prices are constant
  • New information is unpredictable (correct)
  • Market participants rush to trade on new information
  • Information is predictable
  • Fill in the blank statement

    <p>Informational efficiency reflects the ________ at which new information is incorporated into prices.</p> Signup and view all the answers

    Answer

    <p>speed</p> Signup and view all the answers

    Fill in the blank statement

    <p>In an efficient market, new information is incorporated into prices in an instantaneous and ________ manner.</p> Signup and view all the answers

    Answer

    <p>unbiased</p> Signup and view all the answers

    Fill in the blank statement

    <p>Stock prices are unpredictable because ________ is also unpredictable.</p> Signup and view all the answers

    Answer

    <p>information</p> Signup and view all the answers

    Efficiency is composed of two components, one of which is ______ efficiency.

    <p>informational</p> Signup and view all the answers

    In an efficient market, new information is incorporated into prices in an ______ and unbiased manner.

    <p>instantaneous</p> Signup and view all the answers

    A forecast about favorable future performance leads to favorable current performance, as market participants rush to trade on new information until expected returns are exactly commensurate with ______.

    <p>risk</p> Signup and view all the answers

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