Which of the following is a characteristic of an efficientfinancial market?a, Absence of underpriced...

Which of the following is a characteristic of an efficient financial market?

a, Absence of underpriced or overpriced securities

b, Abundance of bargain opportunities

c, Necessity of active portfolio management

d, Focus on security analysis

Solutions

Expert Solution

Answer-Absence of underpriced or overpriced securities

In the case of an efficient market, since all the information is already reflected in the stock prices; thus, there are no underpriced or overpriced securities.Since the securities are correctly priced, so bargain opportunities are not there. Also active portfolio management will be a waste of time and money, thus passive management is preferred. Also, since there are no underpriced or overpriced securities, security analysis, will also be of mostly no benefit.

jeff jeffy answered 2 years ago

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