Question

1. Explain the three versions of Efficient Market Hypothesis and provide an opinion as to which form the US currently operates under and why.

Answer 1

EMH states that all known information about the securities such as stock and bonds, are already embedded into the prices of the securities .The 3 versions of emh are :

a) Weak form EMH - It suggests that all past information is factored into the price of the securities. Fundamental analysis of the securities can provide an investor with a return above than the market in short term but there are no patterns available for future. So no long term analysis is available and no technical analysis will work.

b) Semi-Strong form EMH - it suggests that neither fundamental or technical analysis can provide an advantage to an investor and any new information is immediately priced into the securities.

c) Strong form EMH - it suggests that all information, public and private, is priced into the stock and no investor can gain advantage on the market as a whole.