CFA Practice Question

CFA Practice Question

The assumptions underlying technical and fundamental analysis differ in many respects. Which of the following is an important difference between technical analysis and fundamental analysis? Choose the best answer.
A. Technical analysis assumes that securities "price in" information immediately, whereas fundamental analysts assume that securities markets "price in" information gradually.
B. Technical analysis assumes that the Weak Form of the Efficient Market Hypothesis is correct, whereas fundamental analysis assumes that it is incorrect.
C. Technical analysis is not reliant on financial statements whereas fundamental analysis is heavily reliant on financial statements.
Explanation: Of all the differences between technical analysis and fundamental analysis, perhaps the most important is the fact that technical analysis assumes that securities markets are not weak form efficient, whereas fundamental analysis assumes that the Weak Form of the EMH is correct. Technical analysts assume that securities markets will "price-in" relevant information gradually, and that securities prices follow observable trends and patterns. Fundamental analysts, on the other hand, generally assume that past price information cannot be used to predict movements in securities prices.

User Contributed Comments 4

User Comment
shasha based on the explanation of what "the most important is the face that...", seems B should be chosen as the best shot?
shasha oops! didn't notice that B was expressed in a opposit way. it is NOT correct. Should tick C. sorry!
JCopeland Every type of analysis assumes that at least the weak form EMH is correct.
jpducros JCopeland, That's not what is written in AN answer concerning Technical analysis.
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