Text 1: Economist Dr. Helen Stone defends efficient markets hypothesis. "Asset prices incorporate all available information," Stone writes. "Investors cannot consistently beat the market. Passive index investing is optimal for most."
Text 2: Behavioral finance researcher Dr. Kevin Park documents anomalies. "Momentum, value, and volatility effects persist despite being well-known," Park reports. "If markets were efficient, publicized strategies would be arbitraged away. Systematic deviations from efficiency exist."
What does Park's evidence suggest about Stone's market efficiency claim?
That markets don't exist as institutions
That systematic patterns persist that efficient markets should eliminate
That passive investing is impossible
That information has no price effects
Correct Answer: B
Choice B is the correct answer. Stone's efficiency implies patterns should be arbitraged away. Park notes they persist despite publicity. Persistence of known anomalies contradicts efficiency prediction.
- Evidence: Park: known strategies aren't arbitraged away.
- Reasoning: Efficiency predicts their disappearance; they persist.
- Conclusion: Persistence contradicts efficiency.
Choice A is incorrect because Park studies market behaviors. Choice C is incorrect because Park doesn't discuss passive investing. Choice D is incorrect because both accept informational effects.