Question

b) Discuss implications of the semi-strong form of the Efficient Market Hypothesis (EMH) for investors. Support your answers with some examples and empirical evidence.

Answer 1

Answer(b): Semi strong form of Efficient market hypothesis- EMH has three forms; Weak, semi strong and strong. The semi strong form of EMH says that security prices adjust the available information. Whatever information is available to public, it has already been factored in the current market prices.

Implications for investors- As the information is publicly available hence investors cannot use fundamentals and technical analysis to achieve higher returns.

The information that is not available in the public and if investors get to know that information then investors can utilize that information to get higher returns.

Examples- News that is publicly available can be dividend declaration, stock splits, mergers & acquisitions, tax change etc.

ABC company's share price is trading at $35, Mr. John came to know that ABC company is about to announce its quarterly result and it has got good profit and revenues have increased, soon after this news, ABC company's stock price goes up $45 and then sometimes later it came down to $38 because the news has already been adjusted in the share price of ABC.