Question

In: Finance

Deviations from informational efficiency would result in a large cost that will be borne by all...

Deviations from informational efficiency would result in a large cost that will be borne by all participants, namely inefficient resource allocation. Corporations with overpriced securities, for example, would be able to obtain capital too expensively while undervalued companies might forgo investment opportunities because the cost of raising capital would be too low.

True

False

Solutions

Expert Solution

The given statement is FALSE as deviations from information efficiency can result into large cost that will be borne by all participants and these will be leading to corporation with OVERPRICED security will be having EASY obtainment of capital, whereas, those companies who are UNDERPRICED will be having to forgo investment opportunity because the cost of raising capital will be HIGHER for them.

Hence, the given statement is FALSE.


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