Question: 1 2 . The efficient markets hypothesis True or False: The efficient markets hypothesis holds only if all investors are rational. True False Almost all

12 .

The efficient markets hypothesis

True or False: The efficient markets hypothesis holds only if all investors are rational.

True

False

Almost all financial theory and decision models assume that the financial markets are efficient. The informational efficiency

of financial markets determines the ability of investors to

beat the market

the market and earn excess

(

or abnormal

)

returns on their investments. If the markets are efficient, they will react rapidly as new relevant information becomes available. Financial theorists have identified three levels of informational efficiency that reflect what information is incorporated in stock prices.

Consider the following statement, and identify the form of capital market efficiency under the efficient market hypothesis based on this statement:

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