Many managers of mutual funds proclaim that they have been able to gen

By the same logic "B" should be a strong contender too..
As it weakens the fund manager's claim..
ur views??

Only D makes sense, let me explain how.

"Efficient capital markets hypothesis" states that the current price of the stock represents sum total of all public information. For example if a company is expected to make money by introducing an innovative product, its current price already reflects the effect of the news. But, what the hypothesis does not say is whether the company is undervalued or overvalued, i.e. whether the current stock price exceeds sum of future cashflows. This where D comes in, and provides explanation for the gap between hypothesis and the fund managers' claim. No other option comes close.

Hi There , Requesting you POV on this question with explanation.
thanks

The OA is D. Explanations are given above, for example, here: https://gmatclub.com/forum/many-manager ... ml#p782262

I think that B suits better here
The theory says: market price reflects the true value of the company.
However, managers say they buy undervalued companies.
This means that managers have some unpublic info to make a conclusion that the company is undervalued.

Hi AndrewN

I have a question on this type of questions. In my head I was supposed to find an answer that fit both information points

The Managers say he was able to beat the market and the economic theory says you can't. Hence, that's why I chose B. Instead, we apparently had to treat the two as opposite theories. Is this latter always the case, or sometimes should we find a way to include both. If this is the case how can we tell?

Thanks

Hello, MPRS22. By chance, you get to be lucky number 2000, the recipient of my 2000th post. I hope the next 1000 will prove my best yet. To be honest, whenever you get a definition-based question, you need to stick strictly to that definition to show how correct it may be.

QUESTION: if the efficient capital markets hypothesis is correct, then it should be expected that_____________

DEFINITION: the "efficient capital markets hypothesis"... proposes that stock prices accurately reflect the value of the underlying investments, incorporating all information available to the public.

CONCLUSION: stock prices accurately reflect the value of the underlying investments, based on public information

Such thinking leads straight to (D) as the answer that cannot be disputed:


That should put this concern to rest. Now, you used the word always in your post. I rarely use such language. A different question might take a slightly different spin, but in that case, I would suggest that, once again, you read the question carefully and look to follow the linear logic of the passage.

To be honest, the question reminded me of another post I wrote at the end of last year in response to a definition-based RC question. I offer quite similar advice there, if you feel so inclined.

I hope you find this response helpful. Thank you for thinking to ask.

- Andrew

IanStewart hello expert, I have a doubt. I rule out D because it says “in general market”, while in the theory it says “in efficient market”, and these two are definitely different in Economics.
Also, I picked B cuz the passage says mutual fund managers can generate consistently higher rates of return, so we should explain why they can get high return. And B explains that.
Hope to get your opinion, much thanks.

Three important points:

• the term "efficient capital markets hypothesis" is the name of a hypothesis -- the question never even mentions "efficient markets". The question is only discussing the general stock market;

• the question does not actually tell us that some managers get a consistent high rate of return. It says that some managers "proclaim" that they get a high rate of return. All we learn is what these managers claim is true, not what is actually true;

• assuming we want to fill in the blank (whoever posted the question didn't include the actual question), then we do not need to explain why these managers get a high rate of return, if that's even true. We need to find the answer choice that most logically completes the paragraph. If the last sentence of the stem said "These managers are able to get a consistent high rate of return because ________", then yes, we'd want to explain their success. But the end of the question stem reads "if the efficient capital markets hypothesis is correct, then it should be expected that _____________", so we want an answer that tells us what this hypothesis predicts.

Be sure you confine yourself to the information presented in the passage in CR and RC. It sounds like you brought outside knowledge about Economics to this question, and if you're doing that, you're using information you're not supposed to use, which might lead you to the wrong answer.

IanStewart hi expert, sorry I can’t understand your third point. For sure I know we need to find the answer choice that most logically completes the passage, but I think we can’t only see the last sentence, rather we need to link the whole passage. So I think B is better as it link the former content of the passage, explaining why those fund managers claim so, while considering the theory correct.
Mind to explain further? Thanks in advance.

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