Question

The efficient market hypothesis suggests which of the following

(I) investors should not try to outguess the market by constantly buying and selling securities.

(II) investors do better on average if they adopt a “buy and hold” strategy.

(III) Investors can earn abnormal profits by using past trading patterns of stocks.

A.) (I) and (II)

B.) (I) and (III)

c.) all of the above are sensible strategies.

d.) (II) and (III)

Answer 1

According to the efficient market hypothesis, all the information is already reflected in the share price of the stock. The investors cannot make abnormal profits by constantly buying and selling securities. Hence, investors should not try to outguess the market by constantly buying and selling securities. Alos, investors do better on average if they adopt abuy and hold strategy. The correct option is-

(I) AND (II)

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