Question

I'm trying to understand the concept of efficient market hypothesis.

So assume that a company made a positive announcement on its profit.

The next day, its share price declined (downward trend) after the announcement.

What is this form of EMV? Able to provide some context for better understanding? Thanks.

Answer 1

Market efficiency is with respect to the level of information reflected in the prices. If some information is already incorporated in the price the market is said to be efficient. And therefore using that piece of information would not yield positive excess returns.

Here, the type of efficiency is Semi Strong form.

A market is said to be semi strong efficient if it has all the public information reflected in prices. This includes all past information (week form) and all the public info like earnings, dividends , P/E , announcement, news of economy etc.

The implications is that fundamental analysing cannot yield alpha.

I hope this helps

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