Question

Explain how the Semi-Strong form EMH is tested, and also what is the general empirical evidence related to the Semi-Strong form EMH. Why is this evidence expected?

Answer 1

Semi-strong form of efficient market will be advocating that all the privately available information have not been discounted into the stock price but publicly available information has been discounted into the stock price and there is only scope of making additional rate of income through having an access to the insider information because only those who are charged with the governance are having insider information and they can only make higher rate of return & rest of the market which have the availability of the public information cannot exceed the market rate of return.

Semi strong form of market can be tested when the privately held information have been revealed in the market in form of earnings at quarterly intervals and it can also be seen that there is no technical analysis and fundamental analysis which can provide with additional rate of return because publicly available information have been discounted into the stock price.

General empirical evidence related to semi efficient form of market will be reflecting that all the the privately available information will be providing a scope for the investor for making additional rate of return and and the company will be buying it's on share in the market & will be the indications that management are having the insider information and they are expecting the shares to go up and when there will be no availability of Technical Analysis and fundamental analysis outperformance because there is no pattern which can exceed the rate of return of the market by having access to the public information.

This evidence is expected because all the publicly available information must be discounted in Semi Efficient form of market and privately available information should not be discounted and Insider will always have an upper hand in Semi Efficient Market.