Question

i)Distinguish the three theories of time series behaviour of prices used for testing market efficiency

i)Distinguish the three theories of time series behaviour of prices used for testing market efficiency

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Answer #1

The three theories of time series behaviour which is used for testing market efficiency are:

Weak form - This states that current stock prices reflect all past data which impacts stock prices and hence technical analysis won't help in making any trading decisions on the stock

Semi-Strong form - In this theory, it is told that the public available information is captured in the stock prices and thus it is not possible to undertake any analysis and get superior returns on the stock

Strong form - This tells that time series behaviour of share prices incorporate all information - publicly and privately available. Also no superior returns would be possible from the stocks based on time series analysis.

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