Some economists argue that if stock markets are operating ef

Some economists argue that if stock markets are operating efficiently, all publicly available information relevant to a stock\'s price is already reflected in its current price. Consequently, no extraordinary profit opportunities will exist. Stock prices are thus said to ____________. (select one of the following: behave predictably, follow a random walk, exhibit diversification).

Solution

Behave predictably.

The Efficient Market Hypothesis (EMH) states that a stock\'s (or asset\'s) price reflects all publicly available information that may influence its price. Therefore, all investors already know the information relevant to impact the asset\'s price and therefore no investor can profit by arbitrage.