Question

Which of the following would invalidate the weak form of the efficient market hypothesis?

	a.	Patterns in price behavior that consistently predict future price movements.
	b.	Market analysis proves useful in discovering investment opportunities.
	c.	Stocks of smaller firms consistently outperform larger firms.
	d.	Shortly before she is arrested, a pharmaceutical company researcher makes a large profit on her company's stock by buying just before a new drug is approved by the Food and Drug Administration.

Answer 1

Answer is a. Patterns in price behavior that consistently predict future price movements.

b,c,d are incorrect:

Explanation:

They are 3 levels of Market efficiency:
1. Strong efficiency: Insider information, fundamental analysis and technical analysis are unless in such a market.
2. Semi- Strong: fundamental analysis and technical analysis are unless in such a market.
3. Weak: technical analysis is unless in such a market.

Weak form of efficiency says that past price movement, earnings report and volume traded doesn't affect stocks Current price and can't be used to predict the stocks future directions.

In simple words, past performance (price behaviour) doesn't guarantee the future performance (future price movement) of the stock price moment.

Whereas In the weak form of efficiency fundamental analysis and Insider Information are useful.