An efficient market is a market in which prices reflect information. An implication of an efficient market is that you should not be able to accurately predict whether any new information will be good news vs. bad news. One important news event is when a corporation announces its net income for the year. Assume you discover that it is relatively easy to predict a corporations net income for next year based on this years net income. For example, assume that you have found that when this years net income is negative, then there is an 80% chance that next years net income will also be negative. The fact that it is easy to predict whether net income will be positive versus negative (i.e., it is not a 50-50 chance) is evidence against market efficiency.

A. The last sentence in the above paragraph is true.

B. The last sentence in the above paragraph is false.

The answer key says the answer is (B) False. Wouldn't the answer be True though?

An efficient market is one that isn't easy to predict so isn't this last sentence "against market efficiency" since it's saying that it IS easy to predict? (True)?