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20. If a market is efficient, then the best trading strategy is to (a) trade actively...

20. If a market is efficient, then the best trading strategy is to (a) trade actively (b) trade passively (c) no trade

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Answer #1

The correct answer is (b) trade passively

A passive trading involves a buy and hold stratergy where the investor would hold the stock for a long period of time. This does not involve frequent buying and selling to make profits out of market fluctuations. The goal of passive trading is to reap the long term benefits. When a stock is held for a long term this increases the value of stock overtime. This stratergy can be considered for long term investments. Trading passively has lower costs as compared to trading actively as brokerage and other expenses are less than active trading.Since stocks are not sold frequently in passive trading it results in lower capital gains as well.

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