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Which form of the efficient market has been violated if Elon Musk, CEO of Tesla calls...

  1. Which form of the efficient market has been violated if Elon Musk, CEO of Tesla calls you up to tell you about a new unannounced product that Tesla is introducing and you use this information to earn a profit?
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Answer #1

Answer : Strong-form efficient market has been violated

Explanation: In the strong-form efficient market, the market price of an investment incorporates all information, both publicly available and also that available only to insiders. Therfore, even with the knowledge of insider information it is not possible for the investors to consistently earn abnormal profits in the strong-form efficient market because the insider information is already incorporated in the market price of an investment.

Here, we are able to earn profits with the knowledge of insider information and thus the strong-form efficient market has been violated.

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