Question

Regarding market efficiency, which of the following is true?

a.) Equities markets are perfectly efficient. There has never been an opportunity to make an abnormal profit within the major equities markets.

b.) Equities markets are very efficient. In the past, profit-taking opportunities have occasionally occurred, and some have been well-documented in finance literature. However, such anomalies are quite difficult to spot except in retrospect.

c.) Equities markets are only somewhat efficient, and abnormally profitable strategies can usually be uncovered given basic market knowledge.

d.) Equities markets are inefficient. Most people with little knowledge of equities markets can reliably earn abnormally large profits.

Answer 1

b is correct.

Markets are very efficient and only rarely they provide any opportunity to many abnormal profit. Such opportunities are also identified in retrospect.