Question

Which of the following statements related to strong and semi-strong market efficiency are true? In a...

Which of the following statements related to strong and semi-strong market efficiency are true?

  1. In a semi-strong form efficient market, all past price and trading information (but not all other publicly available information) is fully impounded into current market prices

  2. In a strong form efficient market, corporate insiders are not be able to make superior profits to the market through private information

  3. In a semi-strong form efficient market, investors using fundamental analysis (but not technical analysis) will be able to reliably beat the market

Select one:

I

II

III

I and II

II and III

Homework Answers

Answer #1

The second statement is true. Hence the answer is II.

Thus the statement that is true is: II - In a strong form efficient market, corporate insiders are not be able to make superior profits to the market through private information.

Explanation: This is because in case of a strong form of efficient market prices fully reflect all information. All known information is impounded in the current price of a stock/share. Hence it will not matter if the information is publicly and generally available or not. Insider information is included and hence there is no situation of advantage for corporate insiders.

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