Answered: Which one of the following is the…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 4P

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Question

Which one of the following is the hypothesis that securities markets are efficient?

Multiple Choice

A Geometric market hypothesis

B Standard deviation hypothesis

C Efficient markets hypothesis

D Capital market hypothesis

E Financial markets hypothesis

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Expert Solution

Step 1

The security market is a subset of the larger financial market in which securities can be bought and sold between economic subjects based on supply and demand.
Auction markets, brokered markets, and dealer markets are the three basic forms of market organizations that support securities trading.

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