Which of the following is listed as an argument for the Efficient Market Hypothesis?

• A. Random Walk
• B. Information Disclosure Effect
• C. Investment Analysts' and Mutual Funds' Performance
• D. Technical Analysis

Answer: (A)

Prices reflect all available information and only new information can move prices. Since new information arrives randomly, price changes should be unpredictable, which is the essence of a random-walk pattern. This unpredictability is a hallmark argument for market efficiency: you can’t reliably forecast prices or earn above-average returns using past data or public information because prices already reflect what’s known.

The other options don’t capture this mechanism. If analysts’ and mutual funds’ performance routinely beat the market, that would suggest exploitable inefficiencies. Technical analysis relies on identifying patterns to beat the market, which EMH argues should not yield consistent excess profits. The Information Disclosure Effect isn’t a standard argument used to justify market efficiency; it relates to information availability rather than the fundamental reason prices should move randomly once information is released.