Under the Efficient Market Hypothesis, abnormal gains and losses are minimized.

Under the Efficient Market Hypothesis, abnormal gains and losses are minimized.

• A. True
• B. False
• C. Sometimes
• D. Not specified

Answer: (A)

Prices in an efficient market reflect all available information, so new information is quickly priced in. Because of that, investors cannot systematically earn abnormal returns; any departures from expected risk-adjusted performance tend to be random and short-lived rather than persistent. In other words, abnormal gains or losses aren’t something you can rely on to keep showing up—they’re minimized over time as prices adjust to information. This aligns with the idea that, on average, you shouldn’t expect to beat the market consistently, aside from luck or accepting higher risk. Therefore the statement is true.

Prices in an efficient market reflect all available information, so new information is quickly priced in. Because of that, investors cannot systematically earn abnormal returns; any departures from expected risk-adjusted performance tend to be random and short-lived rather than persistent. In other words, abnormal gains or losses aren’t something you can rely on to keep showing up—they’re minimized over time as prices adjust to information. This aligns with the idea that, on average, you shouldn’t expect to beat the market consistently, aside from luck or accepting higher risk. Therefore the statement is true.