Question

The EMH maintains that prices reflect all relevant information. Weak, semi-strong and strong form efficiency are...

The EMH maintains that prices reflect all relevant information. Weak, semi-strong and strong form efficiency are different versions that vary the relevant information set. Which versions of efficiency would imply that a trading strategy based on trends in historical price and trading volume would not be beneficial?

I. Weak form

II. Semi-strong form

III. Strong form

Homework Answers

Answer #1

The theory of efficient market hypothesis states that it is impossible for an investor to beat the market since market anomalies do not exist.

Efficient Market Hypothesis:

1.Weak form efficiency: Weak form efficiency assumes that all available information is reflected in the prices. So, it is not possible to use technical analysis to achieve high returns.

2.Semi-strong efficiency:Semi-strong efficiency assumes that stock prices have been factored all public information. So, it not possible to use fundamental analysis to beat the market.

3.Strong form efficiency: Strong efficiency assumes that all information, public and private are reflected in stock prices. So, it is not possible to use insider trading to beat the market.

Hence, the answer is I, weak form.

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