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    Question

    In terms of market efficiency, short selling is most

    likely:
    A Leads to undue volatility in the market and makes markets inefficient Correct Answer Incorrect Answer
    B Promotes the efficiency of the markets as it leads to price correction and reduces the probability of assets becoming overvalued Correct Answer Incorrect Answer
    C Short sellers face the risk of huge losses and it can create disruption in the market Correct Answer Incorrect Answer
    D Both a and c Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    priced. Short sellers buy the overvalued shares in order to make a profit when their prices fall down. Therefore, they help in price correction and reduce the probability of assets becoming overvalued. Therefore, they help in promoting the efficiency of the markets. In case of efficient markets, shares are fairly priced. They are not overvalued or under

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