CFA Practice Question

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CFA Practice Question

Which of the following is true concerning an efficient market?

I. Market prices never over-adjust.
II. Market price adjustments are biased some of the time.
III. Market prices may over-adjust or under-adjust at times but adjustments are always unbiased.
Correct Answer: III only

We don't expect prices to adjust perfectly to new information, so there can be over-adjustment or under-adjustment. The term "bias" refers to whether we can systematically predict the price has over-adjustment or under-adjusted. In an efficient market, price adjustments are unbiased.

User Contributed Comments 3

User Comment
achu Good question and an important concept.
todolist Good Q
tomalot Good comments
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