Madison was hired to design and decorate the offices of a large pharmaceutical company

Madison was hired to design and decorate the offices of a large pharmaceutical company.  She accidentally read a report indicating that a new drug had just been approved by the Food and Drug administration.  She immediately bought the company's stock which doubled in price over the following week.  This outcome is inconsistent with

A) the weak-form efficient market hypothesis.

B) the semi-strong form efficient market hypothesis.

C) the strong form efficient market hypothesis.  Her action was probably illegal.

D) all of the above.

Stock prices go up when there is positive information about a company, and go down when there is negative information about the company.

Answer:  TRUE

Strategies that exploit market inefficiencies tend to lose their effectiveness when they become widely known.

Answer:  TRUE

If a market is weak form efficient, an investor can make higher than expected profits by studying the past price patterns of a stock.

Answer:  FALSE

If an individual with inside information can make higher than expected profits, the market is no more than semi-strong form efficient.

Answer:  TRUE

Under the efficient market hypothesis, would securities be properly priced.

Answer:  If markets were perfectly efficient, then investors would price a stock based on the company's expected future cash flows, so at any time the security would be properly priced. If good news becomes available, that would tend to increase the expected cash flows to a company, the stock price will go up, meaning that the new price is then the proper price for the stock.

Are markets moving toward being more efficient or toward being less efficient?

Answer:  Empirical evidence shows that since about the year 2000 pricing anomalies have diminished considerably. Hedge funds have been trying to exploit pricing inefficiencies, and by doing so, eliminate the inefficiencies. Hence, the market appears to be becoming more efficient over time.