A buy side analyst is discussing the relative functionality of the Australian stock market with her colleagues. She states three specific attributes of the Australian stock market that infer that the market is a well-functioning securities market. She says, 'The Australian stock market is characterized by (1) rapid adjustment of prices to reflect new information, and (2) price continuity in the absence of significant new information." Are these accurate descriptions of attributes of a well functioning market?
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A. B. C.A
Both descriptions provided by the buy side analyst are accurate attributes of a well-functioning securities market.
Rapid adjustment of prices to reflect new information: In a well-functioning market, prices should adjust quickly and efficiently in response to new information. This means that when new information becomes available, such as earnings announcements, economic data releases, or corporate news, market participants should be able to incorporate this information into the prices of securities without delay. Rapid price adjustment ensures that market prices are more reflective of the fundamental value of the securities, reducing potential mispricing and allowing investors to make informed decisions based on the latest information.
Price continuity in the absence of significant new information: Another characteristic of a well-functioning market is price continuity. This means that in the absence of significant new information, prices should remain relatively stable and not experience wild fluctuations. Price continuity implies that the market is efficient and that there is a balance between buyers and sellers. It indicates that market participants have access to the same information and have similar expectations about the value of securities, leading to a smoother and more orderly market.
Therefore, the buy side analyst's statements accurately describe two important attributes of a well-functioning securities market: rapid adjustment of prices to reflect new information and price continuity in the absence of significant new information. The correct answer is option A: Both descriptions are accurate.