The efficient market hypothesis implies that

Question

BlackTom AI · Accepted Answer

Efficient Market Hypothesis (EMH) asserts that asset prices fully and rapidly reflect available information, so new information is immediately incorporated into prices and cannot be exploited for consistent excess returns.

1. Relevant knowledge points and concepts:
- EMH has three forms: weak (prices reflect past price information), semi-strong (prices reflect all publicly available information), and strong (prices reflect all information, public and private).  
- Under semi-strong EMH, trading on newly released public information should not yield persistent abnormal profits because prices adjust quickly.  
- “Average investor” implies no privileged/insider information or superior forecasting skill.

2. Complete reasoning, step by step:
- If markets are efficient (semi-strong form), when new public information is released, competition among traders leads to immediate reassessment of asset values.  
- That rapid incorporation means expected post-announcement abnormal return is zero for those trading on that public information (after accounting for risk and transaction costs).  
- Thus, an average investor—who does not possess secret information or superior predictive power—cannot systematically profit from trading on new information.

3. Calculations:
- Not applicable here; the argument is conceptual rather than numeric. (If one modeled expected abnormal return E[α] under EMH, E[α] = 0.)

4. Why the correct answer is correct:
- "The average investor will not be able to profit off of trading on new information." directly matches the semi-strong implication of EMH: new/public information is already priced in, removing systematic profit opportunities for ordinary traders.

5. Why the other options are incorrect:
- "Stock prices adjust slowly to new information." contradicts EMH, which posits rapid adjustment.  
- "Competition is strongest when information is private and hard to interpret." is backwards; private/hard-to-interpret information reduces the ability of most market participants to compete; public information increases competitive pricing.  
- "Public information may provide large profit opportunities... because that information is readily available to all investors." is inconsistent with EMH: if information is readily available, competition removes large profit opportunities.

6. Conclusion:
Therefore the correct choice is: "The average investor will not be able to profit off of trading on new information." This matches the provided answer.

The efficient market hypothesis implies that单项选择题

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