Question

You are the chief financial officer of SABIC. On multiple occasions, you have engaged in insider...

You are the chief financial officer of SABIC. On multiple occasions, you have engaged in insider trading but have never been able to earn any abnormal returns. Which form of market efficiency most likely exists given your situation? And which market(s) you will be able to earn abnormal return based on these inside information you have?

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Answer #1

The gist of EMH is that the prices of assets, such as stocks, reflect all available information about them.

Weak Form Efficiency: The basis of "weak form efficiency" states that "past performance is no guarantee of future results."

Strong Form Efficiency: In "strong-form efficiency," all share prices reflect the entirety of available information, both public and private, meaning no individual can make excess returns, or "beat the market."

So, an insider trader cannot make abnormal profits in case of weak-form efficiency as the prices cannot be used to predict future movements.

Abnormal returns can be made in strong from efficiency as prices predict everything and insider has access to it before others.

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