Regarding Efficient Market Hypothesis (EMH), which of the following statements is TRUE? Investors in the market are assumed to be rational and own private information.If the semi-strong form of EMH is true, all information contained in the history of past prices has been reflected by the current price.If the semi-strong form of EMH is true, you cannot beat the market by trading on private information.Post-earnings announcement drift is consistent with the semi-strong form of EMH.

The efficient market hypothesis (EMH) refers to the theory that states that the price of the stock…

Answered: Regarding Efficient Market Hypothesis…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 11MC

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Regarding Efficient Market Hypothesis (EMH), which of the following statements is TRUE?

Investors in the market are assumed to be rational and own private information.
If the semi-strong form of EMH is true, all information contained in the history of past prices has been reflected by the current price.
If the semi-strong form of EMH is true, you cannot beat the market by trading on private information.
Post-earnings announcement drift is consistent with the semi-strong form of EMH.

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.

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