Certified Management Accountant Practice Exam 2025 - Free CMA Practice Questions and Study Guide

Under the Efficient Market Hypothesis (EMH), security prices are believed to reflect all available information regarding the securities. This means that at any given time, the price of a security incorporates and reflects all relevant information, which can include historical data, public news, and any other factors that might influence its value.

The essence of EMH is that the market is highly efficient in processing information. Therefore, if new information becomes available, it is quickly and accurately factored into the security prices. This premise leads to the conclusion that it is virtually impossible to consistently achieve higher returns than the average market return on a risk-adjusted basis, since any new information that could affect the price is already included in the current price.

In contrast, the other options focus on narrower aspects that do not encompass the full spectrum of information considered in EMH. While past performance might provide some insight, it does not reflect all current and prospective information. Similarly, opinions of market analysts are subjective and may not align with the actual market consensus, and speculative trends are influenced by temporary sentiments rather than foundational information. Thus, the correct understanding is that security prices are a comprehensive reflection of all available information in the market.