Question

Beatrice believes that the company’s CFO, Bradley, knew about the acquisition plan before it was announced to the public and makes a lot of personal gain by trading shares. If Beatrice is right, which efficient market hypothesis is observed in this case? (There may be more than one correct answer. You will lose marks by choosing a wrong answer.

The minimum mark for the question is zero.) Select one or more: a. Semi-strong form b. Strong form c. Operational efficiency d. Financial efficiency e. Weak form

Answer 1

Since the CFO of the company was able to benefit from the private information, he had we can say that the market is not strong form efficient as strong form of efficient markets adjust the price even for information’s which are private in nature very quickly so one cannot generate excess return.

So here we can say that there is

Semi-strong form of efficiency

Weak form of efficiency

Because semi-strong form states that fundamental analysis can not be used to generate excess return and weak form states that past price pattern can not be used to generate excess return and both of them seems not to be violated here. So, the correct answer is a) semi-strong form and e) Weak form