What is the most important determinant of stock price in an

What is the most important determinant of stock price in an efficient market?

Question 13 options:

a)

b)

c)

d)

The ability of investors to perfectly adjust prices based on new information

In an efficient market, the expected abnormal return on a security is:

Question 14 options:

a)

b)

c)

d)

greater than the security’s required return.

Using technical analysis to consistently earn abnormal returns is consistent with which form of the Efficient Market Hypothesis?

Question 16 options:

a)

b)

c)

d)

Solution

13.

A market is considered as efficient when all stock related information is publicly available to all investor and invest make decision rationally for make investment decision. In efficient market, required rate of return is equal to expected rate of return and market value of stock is equal to book value of stock.

So, The ability of investors to perfectly adjust prices based on new information is most important determinant of stock price in an efficient market.

Option (D) is correct answer.

14.

In efficient market, required rate of return is equal to expected rate of return and market value of stock is equal to book value of stock. So, In an efficient market, the expected abnormal return on a security is equal to zero.

Option (A) is correct answer.

16.

In Weak Form Efficient market, future stock price is not depending on past stock price. So, in Weak Form Efficient market future stock cannot be predicted. In short term investor can earn excess return than market but in long term investor cannot earn higher return in market. So, in weak form of efficient market, technical analyst earns abnormal return.

Option (B) is correct answer.