Which statement is true regarding efficient markets and security prices?

In efficient markets, security prices adjust rapidly to reflect all available information. This is a key principle of the Efficient Market Hypothesis (EMH), which posits that it is impossible to consistently achieve higher returns than average market returns on a risk-adjusted basis, since security prices already incorporate all known information. When new information becomes available—whether it's related to economic indicators, corporate performance, or broader market trends—efficient markets will quickly assimilate this information into prices, leading to immediate adjustments.

The ability of markets to respond swiftly to new information is what characterizes them as efficient. This means that any opportunity for arbitrage—gaining risk-free profit from price discrepancies—tends to be short-lived, as traders act on the information almost instantaneously. As a result, the current prices of securities are a robust reflection of their true value based on all accessible data.

In contrast, other statements do not align with the principles of efficient markets. For instance, if efficient markets had mispriced securities, it would imply a failure to fully incorporate available information into prices, contradicting the concept of efficiency. Similarly, while volatility in prices can occur due to various factors, it does not inherently define an efficient market. Finally, stating that efficient markets do not