CFA Practice Question

There are 275 practice questions for this study session.

CFA Practice Question

If the strong-form efficient market hypothesis is ______ then valuation models would be ______ and all securities would be correctly priced at any point in time.

A. correct; useful
B. correct; useless
C. incorrect; useful
D. incorrect; useless
E. Both B & D are correct
Correct Answer: B

Strong-form efficient market hypothesis: a hypothesis that says that all information, insider as well as public, is reflected in the price of a security.

User Contributed Comments 4

User Comment
ascruggs92 This question underscores how ridiculous this hypothesis is. If valuation models were useless, how would people arrive at the fair value of an asset in the first place? How would people know the exact amount the price should adjust to news? Let me guess, its assumed that everyone knows everything and is able to instantaneously make complex calculations in their head to arrive at the same number? Should we also assumed that people will all assign the same risk adjustment to an asset based on the most recent new? Last time I checked there's no way to accurately and consistently measure future risk, and since Beta is only based on past data, it is literally useless for measuring real risk.
Inaganti6 That's why the EMH is nothing but textbook filler material . If EMH was true we wouldn't have a Warren Buffett or other uber billionaires. As far as we're concerned, just read the material answer the questions and pray that you pass, anything more than that is none of your business !
NOBAN Let me add... EMH (Strong market efficiency) means the market price is ideal and would be the only price. then why do u need to determine another price through valuation? Hence valuation models would be useless.
khalifa92 market efficiency "hypothesis"
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