Question

discuss the implications of EMH. If investors subscribe to the EMH market model, could they beat the market? Consider this more than 95% of mutual funds managers are unable to beat the market, why?

Answer 1

Answer:-

The three forms of market efficiency can be weak form efficient, semi-strong form efficient and strong form market efficient.

1. Weak-form market efficiency:- This form of EMH implies that the current prices of securities fully reflect all available market data and the security prices fluctuation will be independent for each periods of time.

2. Semi strong market efficiency:- In this form of EMH the investors consider that the information is already reflected in the prices and will see how the new information can effect the prices of securities.

3. Strong form market efficiency:- This form of EMH the securities have priced all the public and private information.

In weak form of efficient hypothesis the investor cannot make positive returns by means of technical analysis. In semi strong EMH the investor cannot earn positive returns using fundamental analysis. In strong form EMH none of the investors have total information relevant to the prices of securities and will not be able to earn positive abnormal returns.

Considering 95% of mutual funds managers are not able to beat the market because of high fees and high pays of the active fund managers.