Question

Which of the following is not an issue that is central to the debate regarding market efficiency? A. the tax-loss selling issue B. the magnitude issue C. the lucky event issue D. the selection bias issue

Answer 1

As we know under efficient market hypothesis the stock prices are perfect reflection of the available information in the market.

There can be 3 main reasons on which we can check the markets efficiency :-

• Magnitude issue :- The impact of investment manager is very less compared to the whole market.
• Lucky event issue :- There is a possibility that any one investor could be fairly lucky with some stock and earn unexpected returns.
• Selection Bias :- As all the information under efficient markets are available makes it useless as chances of unexpected returns are gone.

As, We can see the above three issues related to market efficiency.

So, Tax loss selling issue is not central to the debate regarding market efficiency.

• So, Option A. Tax loss selling issue is correct