Question

11. Answer the following questions for #11 with 50 - 100 words.

The efficient market hypothesis is interpreted in a weak form, a semistrong form, and a strong form. How can we differentiate its various forms?

What was the primary purpose of the Securities Act of 1933?

Answer 1

1. Weak form :

If markets are weak-form efficient, past trading data are already reflected in current prices and investors cannot predict future price changes by extrapolating prices or patterns of prices from the past.

2. Semistrong:

In a semi-strong-form efficient market, prices reflect all publicly known and available information. Publicly available information includes financial statement data and financial market data. Fundamental analysis is futile if the market is semi-strong-form efficient

3. Strong:

A market that is strong-form efficient is, by definition, also semi-strong- and weak-form efficient. A strong-form efficient market also means that prices reflect all private information. Researchers test whether a market is strong-form efficient by testing whether investors can earn abnormal profits by trading on nonpublic information.

Purpose of Securities Act 1933:

The two main objectives of Securities Act 1933 are

• To ensure that investors receive financial and other significant information concerning securities being offered for public sale; and

• To prohibit deceit, misrepresentations, and other fraud in the sale of securities.