ACCA FM · Chapter 13 · Question 6 of 9
Research shows that a stock market is weak form efficient. What is the implication for investors?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Technical analysis of past share price movements cannot be used to earn consistent abnormal returns
Explanation
Weak form efficiency means current share prices fully reflect all information contained in past price movements, so prices follow a random walk and chartism (technical analysis) cannot consistently earn abnormal returns. Weak form efficiency alone does not rule out profits from fundamental analysis or inside information.
More Business valuations and market efficiency MCQs
- Q8A company has 5% bonds ($100 nominal) that pay interest annually and will be redeemed at a 5% premium in four years' time. Investors…
- Q9A company expects to pay a dividend of $0.50 per share in one year's time. Dividends will then grow at 10% a year for the following two…
- Q1A company has total assets of $18m, including purchased goodwill of $2m, and total liabilities of $7m. There are 5 million shares in…
- Q2An unlisted company has annual earnings of $2.4m. A similar listed company has a price/earnings ratio of 14. The acquirer believes a…
- Q3A company has just paid a dividend of $0.25 per share. Dividends are expected to grow at 4% a year indefinitely and shareholders require a…