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Are the following statements true? Statement 1: If financial markets are not informationally efficient, they will...

Are the following statements true?
Statement 1: If financial markets are not informationally efficient, they will not be allocationally efficient.
Statement 2: Most tests of semistrong form efficiency are based on technical trading rules.

A.

Yes.
B.

No. Both are not true.
C.

No. Only statement 1 is true.
D.

No. Only statement 2 is true.
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Answer #1

C. No. Only statement 1 is true

Statement 1: Correct

Informational efficiency states that information must be properly included into prices. In an informationally efficient market, market prices reflect all relevant information about the securities and allocational efficiency states that funds will be allocated to their highest valued use. So, If financial markets are not informationally efficient, they will not be allocationally efficient.

Statement 2: Incorrect.

Most tests of semi strong form efficiency are based on risk adjustment measure and joint test of market efficiency. Semi strong form efficiency states that security prices reflect all publicly available information. Semi strong form of market efficiency tests includes-examination of stock prices adjustments, event identification, collection of data, calculating and assessing the excess returns

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