What are the three forms of the Efficient Markets Hypothesis?

Expert Solution

The efficient market hypothesis states that Stock Price already reflects all the available information.

There are mainly three forms of efficient market hypothesis:

a) Weak form: It states that stock prices already reflect all the information that can be derived from the past data of stocks but it does not reflect the information which are not yet publically available. Also, past information like price, return etc. are independent of future information i.e. past information cannot be used to predict the future prices.

b) Semi-strong form: It incorporates week form assumptions and adds that the stock prices adjust to new information available quickly. Thus it indicates that predictive analysis are useless as prices adjust to new information quickly.

c) Strong-form: In this form of the hypothesis, that stock prices reflect all information public and private information which are available to insiders only. Thus even insiders information cannot be used to predict the price of the stock.

jeff jeffy answered 1 year ago

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