Which of the following is true about the Efficient Market
Hypothesis, EMH
correct answer : The semi-strong form EMH contains the
weak-form EMH.
what the theory
says
There are 3 forms of market efficiency under efficient market
hypothesis:
- Weak form of efficiency;
- Semi- strong form of efficiency;
- Strong form of the efficiency.
- The weak form of efficiency stock : Here, prices are assumed to
reflect any information that may be contained in the past history
of the stock prices. So, in weak form of efficiency, no one
investor or group of investors should be able to earn abnormal
returns by using information about historical prices available for
them and by using technical analysis.
- The semi-strong form of efficiency : Here, all publicly
available information is reflected in stocks’ prices. This
information includes information in the stock price series as well
as information in the firm’s financial reports, the reports of
competing firms, announced information relating to the state of the
economy and any other publicly available information, relevant to
the valuation of the firm. One more thing is that, the market with
a semi strong form of efficiency encompasses the
weak form of the hypothesis because the historical market
data are part of the larger set of all publicly available
information. So no one investor or group of investors should be
able to earn abnormal returns by using information about historical
prices and publicly available fundamental information and
fundamental analysis.