Question

There are three forms to the Efficient Market Hypothesis. Please describe each of the forms and what they assume. Based upon your reading of the text and your own knowledge and research, do you believe there is any element of truth to any of these hypothesis? In your opinion, does this hypothesis add to our general understanding of how markets work, or is it too outdated to be of any value? Please provide some support for your opinion.

Answer 1

There are three form of Efficient market hypothesis-

A. Strong form of Efficient market hypothesis advocates that all the publicly available information and privately available information have already been discounted into the stock price and there is no scope for making an additional rate of return for the Investor by beating the index rate of return

B.Semi strong form of Efficient market hypothesis advocates that all the publicly available information have been Discounted in to the stock price but privately available information have not been discounted into the stock price and there is always a scope for making an additional rate of return by having access to the insider information of the company

C.Weak Form of Efficient market hypothesis will advocate thst stock markets have been completely reflective of the historical trends and the past performance so there is no scope for making an additional rate of return through application of technical Analysis.

There is element of truth in the hypothesis because active investors have not been able to outperform the market in the longest period of time and only small number of investors have outperformed the market.

there is a truthfulness in semi efficient form of market because it is generally adopted in current scenario. It can be reflected through performance of various active fund investors also.