Question

if the stronger version of the efficient market hypothesis is true, so that stock prices reflect the true fundamental value of the stock, the strategy that most investors should use when investing is to

a) invest solely in mutual funds

b) follow the tips from the most prominent financial advisors

c) continuously buy and sell of stocks

d) buy and hold a diversified set of stocks

suppose that your investment advisor calls you and tells you that a certain stock is significantly undervalued. The price of that stock will ___ in the furture.

Answer 1

The stronger version of the efficient market hypothesis indicates that all the information regarding prices of the stock whether published or unpublished had already been reflected in current prices of stocks.

In such scenario, making gusses or taking advice from financial brokers to purchase stocks or continuously buying and selling stocks would not be a favorable strategy and it will not lead to any gain.

The best option in such scenario is to buy and hold a diversified set of stocks.

Hence, the correct answer is the option (d).

Suppose that your investment advisor calls you and tells you that a certain stock is undervalued.

The price of that stock will increase in the future.