Question

The Efficient Market Hypothesis has three forms. Please name and describe the three forms of the Efficient Markets Hypothesis.

Answer 1

Efficient Market hypothesis has three fomrs -(1) Week form of market efficiency (2) semi strong form of market efficiency (3) strong form of market efficiency.

Week form of market efficiency- under weak form of market efficiency, all the past informations have its impact on the prices of stock so no one can use past published information to earn abnormal return. The weak form of the EMH says that information related to past prices, volume do not provide any insights that can be used to predict future price movement. Week form of the EMH, invalidates the technical analysis

Semi Strong form - The semi-strong form of market efficiency state that stock prices fully reflect all present publicly published information and expectations about the future events. Semi strong form of EMH suggests that market is too responsive to information as it become public, prices adjust automatically, and that available information cannot be used to earn superior returns. The semi-strong form, invalidates the fundamental analysis

Strong form- The strong form of EMH says that prices fully reflect all information whether past,present or future. Even the knowledge of insider information about material, non-public information cannot be used to earn superior profits.