Concept of Informational Efficiency
6 questions. Each answer is explained.
Question 1 of 6Practice · Series XXI-B — Portfolio Managers
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Learn these topics
More units in NISM Series XXI-B
- Investment Landscape and Required Return4
- Introduction to Securities Markets and Participants3
- Investing in Stocks and Equity Research7
- Investing in Fixed Income Securities and Bond Valuation6
- Derivatives in Portfolio Management6
- Mutual Fund6
- Role of Portfolio Managers in India8
- Operational Aspects of Portfolio Managers (Onboarding and Fees)8
- Portfolio Management Process and Asset Allocation8
- Taxation6
- Regulatory, Governance and Ethical Aspects of Portfolio Managers8
- Introduction to Indices6
- Behavioral Finance6
- Introduction to Modern Portfolio Theory6
- Introduction to Capital Market Theory6
- Risk8
- Equity Portfolio Management Strategies14
- Fixed Income Portfolio Management Strategies14
- Performance measurement and evaluation of Portfolio Managers8
- Portfolio Rebalancing6
Exam format
| Questions | 120 · 1 or 2 marks each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 25% · 0.25 or 0.5 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series XXI-B Portfolio Managers
Exam rules read on NISM's site on 30 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 30 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 6 questions on Concept of Informational Efficiency, with answers
Q1Under weak-form market efficiency, which information set is already reflected in security prices?
Option A. Historical prices and trading information — Correct answer
Option B. All private corporate information as well
Why it is wrong: That stronger claim belongs to strong-form efficiency.
Option C. Only forecasts made by the largest investors
Why it is wrong: Weak-form efficiency is not limited to selected investors’ forecasts.
Option D. Only information released after the next trading day
Why it is wrong: Efficiency concerns information already available, not later unknown releases.
Answer: A. Weak-form efficiency says prices already reflect historical market information such as past prices and trading data. It does not make the stronger claim that all private information is reflected. Remember: The forms of efficiency differ by the information assumed to be reflected.
Hint, shown before you answer in practice mode: Recall the narrowest of the three standard information sets. Common mistake: Confusing past trading information with all public and private information.
XXI-B-077easyconceptual
Q2Which information set defines the semi-strong form of market efficiency?
Option A. Only information known privately to company insiders
Why it is wrong: Private information is not the defining semi-strong information set.
Option B. Only information used by technical chart analysts
Why it is wrong: Semi-strong efficiency includes broader public information beyond chart inputs.
Option C. Only past prices and trading volume
Why it is wrong: That narrower information set describes weak-form efficiency.
Option D. All publicly available information — Correct answer
Answer: D. Semi-strong efficiency says security prices reflect all publicly available information. Public financial announcements are therefore included in its information set. Remember: Semi-strong efficiency extends beyond historical price information.
Hint, shown before you answer in practice mode: Consider published financial reports as well as market trading history. Common mistake: Restricting public information to only the data shown on a price chart.
XXI-B-078easyconceptual
Q3A public earnings surprise is incorporated immediately into a share price. Which efficiency claim is this observation most directly consistent with?
Option A. Rapid adjustment to public information — Correct answer
Option B. A requirement that the share price never changes
Why it is wrong: Efficient prices can change when new information arrives.
Option C. Predictable excess profit from already published news
Why it is wrong: Immediate adjustment does not support an easy later profit from the same news.
Option D. Proof that every private fact was already priced
Why it is wrong: A response to public news does not prove strong-form efficiency.
Answer: A. The observation is consistent with rapid adjustment to public information, as semi-strong efficiency proposes. A single event does not prove that every security is always efficient. Remember: Evidence consistent with a hypothesis is not proof that it holds universally.
Hint, shown before you answer in practice mode: Identify when the information became public and when the price responded. Common mistake: Treating one rapid price adjustment as proof of complete market efficiency.
XXI-B-079mediumapplication
Q4Which improvement primarily concerns operational efficiency rather than the information reflected in market prices?
Option A. Prices responding immediately to a material public disclosure
Why it is wrong: That concerns adjustment to information rather than processing cost.
Option B. Executing and settling trades at lower processing cost — Correct answer
Option C. Historical prices losing predictive power for excess returns
Why it is wrong: That concerns the weak-form information-efficiency hypothesis.
Option D. Public earnings news being incorporated more quickly
Why it is wrong: Faster incorporation of information primarily concerns informational efficiency.
Answer: B. Lower processing costs concern operational efficiency because they improve the mechanics of trading and settlement. Informational efficiency concerns how information is reflected in prices. Remember: Low transaction friction and informative prices are different dimensions of market quality.
Hint, shown before you answer in practice mode: Separate the cost of operating a market from what its prices know. Common mistake: Assuming an inexpensive trading system must also produce fully informative prices.
XXI-B-080mediumconceptual
Q5A strategy beats the market before costs but takes much greater risk. What must be assessed before calling this an efficiency-challenging anomaly?
Option A. Whether abnormal returns remain after risk adjustment and costs — Correct answer
Option B. Whether the strategy trades more frequently than the market
Why it is wrong: Trading frequency alone does not show abnormal performance.
Option C. Whether the raw return is positive in one selected year
Why it is wrong: A positive selected-period return does not establish a persistent abnormal return.
Option D. Whether its most successful stock became well known
Why it is wrong: One successful holding does not establish a systematic market anomaly.
Answer: A. Risk-adjusted returns after costs must be assessed before calling the result an anomaly. Higher raw returns may simply compensate for higher risk or disappear after implementation costs. Remember: An apparent anomaly requires more evidence than an attractive unadjusted backtest.
Hint, shown before you answer in practice mode: Compare like-for-like risk and the return investors can actually retain. Common mistake: Equating high raw returns with proof that the market is inefficient.
XXI-B-081mediumapplication
Q6Why can perfectly costless-looking informational efficiency create an incentive problem for costly investment research?
Option A. Research becomes unnecessary because future events are certain
Why it is wrong: Efficiency does not mean that future events are known with certainty.
Option B. Research must always earn a guaranteed premium in an efficient market
Why it is wrong: Market efficiency does not guarantee a reward for every research effort.
Option C. Research costs automatically make all private information public
Why it is wrong: Paying for research does not itself disclose information to the market.
Option D. Research may stop being worthwhile if information is already fully priced — Correct answer
Answer: D. If all information were already fully reflected at no reward, costly research could lose its incentive. Yet information gathering helps make prices informative in the first place. Remember: Informative prices still depend on incentives to gather and process information.
Hint, shown before you answer in practice mode: Think about who pays to discover information before others can use it. Common mistake: Interpreting market efficiency as a world with no need for analysis.
XXI-B-082hardconceptual
Concept of Informational Efficiency: common questions
How many practice questions are there on Concept of Informational Efficiency?
6 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 21 practice topics for NISM Series XXI-B, which has 150 questions in total.
Are these real NISM Series XXI-B questions on Concept of Informational Efficiency?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series XXI-B?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1 or 2-mark question that is 0.25 or 0.5 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
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