Proponents of the Efficient Market Hypothesis (EMH) typically advocate

Question

BlackTom AI · Accepted Answer

Efficient Market Hypothesis (EMH) asserts that financial asset prices fully reflect available information, so consistently achieving above-market returns through publicly available information is unlikely. Key concepts: forms of EMH (weak, semi-strong, strong), random walk of prices, and the implications for investment strategy—if markets are efficient, active trading and forecasting based on past prices or public news should not systematically beat a market portfolio after costs.

Step-by-step reasoning:
1) If prices incorporate all relevant information, predictable patterns exploitable by frequent active trading or technical analysis should not persist. Any apparent pattern is either noise or already arbitraged away.
2) Active strategies require frequent trades and/or specialized research. Even if gross returns sometimes exceed the market, transaction costs and management fees typically erode or eliminate that advantage.
3) Therefore, a rational response to EMH is to hold a broadly diversified portfolio (to capture market returns while reducing idiosyncratic risk) and minimize fees and transaction costs (to avoid eating into the market return).
4) Empirical support: many studies show that, on average, active mutual fund managers fail to outperform relevant benchmarks net of fees and costs—consistent with EMH predictions.

Why the correct option is correct:
Holding a diversified, low-cost portfolio aligns directly with EMH’s conclusion that investors should aim to capture market returns, not beat them, and avoid unnecessary trading and fees that reduce net return.

Why other options are incorrect:
- Frequent active trading to exploit price patterns contradicts EMH’s claim that exploitable patterns shouldn’t persist.
- Technical analysis as the main source of profits assumes repeatable patterns in past prices, which EMH (weak form) denies.
- Monthly market timing assumes predictable short-term price moves; EMH implies such timing won’t consistently succeed after costs.

Conclusion: The correct answer is holding a diversified portfolio and minimizing fees and transaction costs.

Proponents of the Efficient Market Hypothesis (EMH) typically advocate单项选择题

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