Question

For each of the following kinds of information, indicate which form of the efficient markets hypothesis is supported if that information is reflected in security prices:

a. Government released data on the money supply;

b. A corporate quarterly earnings report;

c. A public release of information from the Securities and Exchange Commission on insider trading;

d. Confidential discussion of a corporate board of directors on dividend policy;

e. A history of a bond’s prices.

Answer 1

a. Semi - strong form of market efficiency:Semi strong form of market efficiency states that all public information is completely reflected in the stock prices. The stock prices will incorporate any release of information publicly, quickly and efficiently. Hence, investors cannot earn extra profits by trading on such information.

b. Semi string form of market efficiency.

c. Semi strong form of market efficiency.

d. Strong form of market efficiency: all public as well as insider information is reflected on the stock prices.

e. Weak form of market efficiency: All the past prices of securities and volume data is reflected on the security prices.