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Your friend Judy has gone to work for the CDC. Every day you call her at...

Your friend Judy has gone to work for the CDC. Every day you call her at 3:30 PM and get an early forecast of what the new coronavirus numbers (which are released at 7) are expected to be. If you can make abnormal trading returns based on the information that Judy gives you, does this violate market efficiency?

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Answer #1

Yes this is a violation of strong form of efficiency in the markets, because I am trying to gather the insider news which has not yet been public and this insider news is helping me to make an additional rate of return.

According to the strong form of market efficiency, all the publicly available information and privately available information have already been discounted into the stock price.

In this case, I am trying to gain an additional rate of return through having access to the privately available information and there is no discounting of those information into the stock price which is helping me to make an additional rate of return which is a clear violation of the principle of strong form of market efficiency.

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