Question

Strong-form efficiency implies that mutual fund managers should

A. buy the index that maximizes diversification and minimizes the cost of managing portfolios

B. actively seek underperforming stocks and buy them

C. generally earn superior returns each year

D. attempt to earn superior returns by using technical analysis

Answer 1

Ans A. buy the index that maximizes diversification and minimizes the cost of managing portfolios

Strong-form efficiency implies that mutual fund managers should buy the index that maximizes diversification and minimizes the cost of managing portfolios. Strong form efficiency is the most stringent version of the efficient market hypothesis investment theory. It states that all information in a market whether public or private is accounted for in a stock's price.