Question

Suppose that investors have not been able to earn excess returns using newly released announcements about the firms. Based on this statement only, which of the following must be correct?

a. Markets are semi-strong-form efficient, but not weak-form efficient.

b. Markets are at least weak-form and semi-strong-form efficient.

c. Markets are weak-form efficient, but not semi-strong-form efficient.

d. Markets are semi-strong-form efficient, but not weak-form efficient.

e. Markets are definitely strong-form efficient.

Answer 1

The markets are semi-strong form efficient but not weak-form efficient. Semi-Strong Form efficient means that publicly available information or any newly released announcements by an Organisation is of no use in beating the market. That is, it is not useful in generating excess return. Whereas, weak-form efficient means that past or historical prices are of no use in beating the market. That is, they are not useful in generating excess return.

From the available options, the answer to the question would be Markets are semi-strong form efficient and not weak-form efficient.