In: Finance
Discuss the empirical evidence on market under-reaction in the context of weak and semi-strong efficiency
Semi-strong market is a market wherein all the relevant publicle information is easily reflected in the market price of a particluar stock. If a market found to be semi-strong efficient, the current market price of any stock is viewed as the best available unbiased predictor of reaching a fair price taking into consideration variety of publicly available information about the risk and return of that particular investment. They say that the study of any public information will not yield any type of consistent excess returns to the investors.
But there are several limitations in defining what is the publicly available information and how do the investors come across it.
Weak form of market is comprising of one set of public information that included past prices of stocks. They say that future prices cant be predicted using historical prices alone. With no relation, the chances of achieving excess reurns is extremely less.
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