Question

ln not more than 300 words, briefly discuss the Capital Market Efficiency Theory. please add references to your response. this is corporate financial management question

Answer 1

Capital market efficiency Theory

The Capital Market Efficiency Theory states that prices of the share reflect all the information and hence, they trade at their fair prices in the stock market. There are majorly three forms of Capital Market Efficiency Theory and they are described below:

1. The weak form of Efficient Market Hypothesis – price pattern of shares disappear and the analysis of past price cannot help the investors to beat the market

2. The semi-strong form of Efficient Market Hypothesis – It states that all publicly available information is reflected in the prices of the stocks instantaneously. Hence, the analysis of publicly available data will not help the investors to beat the market.

3. The super-strong form of Efficient Market Hypothesis – Stock price reflects all publicly and privately available information and hence, any amount of analysis cannot help the investors to beat the market