Question

On 30 th June 2020, Attock Petroleum Limited published their annual earnings report which
resulted in an increased stock price. On 1 st July, 2020, Mr Saeed an investor earned abnormal
profits while beating the other traders in the market. Considering that financial markets were
weak form efficient, in your opinion, according to Efficient Market Hypothesis; if no investor can
beat the market or create an arbitrage then how Mr Saeed did it? Justify your answer.

Answer 1

Weak form efficiency tells us that you can't determine the stock price based on its past performance. it means technical analysis is of no use.

In the question, it is not mentioned thatwhen Mr. Saeed invested in the stock.

Had the market been semi strong form efficient, Mr. Saeed would have used this information as an unpublished one to buy stock before the release of annual earnings report, and therefore earning profits and beating the market.

But as the market is weak form efficient, it means stock price can't be predicted based on past performance. Therefore, considering the assumption that Mr. Saeed would have bought stocks of Attock petroleum much earlier, on 30th June, report was published and due to good performance stock price on 1st July went up, therefore Mr. Saeed made abnormal profits compared to other investors.