Question

Provide a discussion on the central idea of EMH, forms of market efficiency and tools investors may use to try to outperform the market. Subject is Investment

Answer 1

Efficient market hypothesis is a form of market hypothesis which is used to determine the efficiency of the market and it advocates that investors cannot make a higher rate of return than the market, because all the information which are publicly available and privately available have already been discounted into the price.

There are three forms of efficiency which could be seen in Efficient market hypothesis. These three type of efficiency are strong form of market efficiency, semi strong form of market efficiency, weak form of market efficiency.

Strong form of market efficiency advocates that all the publicly available information and the privately available information have already been discounted into the stock price and there are no room for making an additional rate of return.

Semi strong form of market hypothesis advocates that all the publicly available information has been discounted into the price and privately available information are not discounted into the price so excess rate of return can be made through insider information.

Weak form of market efficiency advocates that the past price and historical values and trends cannot be helpful in prediction of the future prices so technical analysis is of no use in weak market efficiency .

Investors can be using various kinds of active market investment strategy like technical analysis and fundamental analysis along with arbitraging and hedging in order to outperform the Market.