Question

The weak form of the efficient-market hypothesis asserts that

A. stock prices do not rapidly adjust to new information contained in past prices or past data.
B. future changes in stock prices cannot be predicted from past prices.
C. technicians cannot expect to outperform the market.
D. stock prices do not rapidly adjust to new information contained in past prices or past data, and
future changes in stock prices cannot be predicted from past prices.
E. future changes in stock prices cannot be predicted from past prices, and technicians cannot
expect to outperform the market.

Select the correct option and explain.

In an efficient market,
A. security prices react quickly to new information.
B. security prices are seldom far above or below their justified levels.
C. security analysis will not enable investors to realize superior returns consistently.
D. one cannot make money.
E. security prices react quickly to new information, security prices are seldom far above or below
their justified levels, and security analysis will not enable investors to realize superior returns
consistently.

Select the correct option and explain.

Answer 1

1. Weak form of efficiency says that past price movement, earnings report and volume traded doesn't affect stocks Current price and can't be used to predict the stocks future directions.

In simple words, past performance doesn't guarantee the future performance of the stock price moment.

Whereas In the weak form of efficiency fundamental analysis and Insider Information are useful.

Answer: Option E

future changes in stock prices cannot be predicted from past prices, and technicians cannot
expect to outperform the market.

2. Efficient market hypothesis:

They are 3 levels of Market efficiency:
1. Strong efficiency: Insider information, fundamental analysis and technical analysis are unless in such a market.
2. Semi- Strong: fundamental analysis and technical analysis are unless in such a market.
3. Weak: technical analysis is unless in such a market.  

security prices already reflect new information.

So in Strong efficiency:
C. security analysis will not enable investors to realize superior returns consistently.