Question

The implications of semi-strong form efficiency for investors and managers.

Answer 1

Semi efficient form of market hypothesis advocates that all the publicly available informations are already incorporated into the share price while the private informations are not incorporated in the share price. there is only a scope of making higher and abnormal return than index through a process of insider trading because those private informations are not discounted into the price.

The implications of semi efficient form of market hypothesis for fundamental analyst is that they cannot outperform the market, as all the publicly available information are already incorporated into the share price . There is no type of fundamental analysis that can help them to beat the rate of return of the index. The index will continuously outperform them if they try to do any kind of active investment strategy and arbitrage because all the publicly available informations are already discounted into the price and since the fundamental analyst does not have access to the insider information of a company, he will have no window to outperform the market.

The implications of semi efficient form of market to the investors are that only the investors which are into the board of directors of the company, or the relatives of the board of directors of the company, or have any kind of information which is private in nature, so they can trade through insider trading and private sensitive informations which have the capability of affecting the price, can only outperform the market.Rest of the investors does not have access to the insider information can never outperform the market according to this theory.