Question

1.) i) In 1987, trader Ivan Boesky was accused of insider trading based on his massive purchases of stock of firms before announcements of acquisitions of those firms. Which of the following is true?

a) This indicates the market is strong-form efficient

b) This indicates the market is at best semi-strong form efficient

c) Insider trading indicates the market is weak-form efficient

d) Insider trading does not indicate anything regarding market efficiency.

ii) If the share price automatically adjusts when there is information that has not been distributed to investors, which of the following types of market efficiency is best evidenced?

a) weak form

b) semi-strong form

c) strong form

d) semi-weak form

iii) Which of the following forms of market efficiency should be least likely in a country which has insider trading laws?

a) strong form market efficiency

b) semi-strong form market efficiency

c) weak form market efficiency

d) semi-weak form market efficiency

Answer 1

1.

Correct answer is b.)This indicates the market is at best semi-strong form efficient

Semi stron form market effeciency is one where all public available information is captured ins tock price nut all ainformation that is not publiclt available is not priced in so insider trading can involve undue advantage.

Since Insider trading was happening market is semi strong form effecient.

2

Correct answer is c) Strong from

Strong from market effecient is one where stock price would represnt all publicly available information and insider information and would adjsut accordingly.

In the given situation since stock adjust for insider information it is strong from market.

3. Correct answer is b) Semi-Strong form market effeciency

Semi strong form effecient market is one which not adjust fior nsider trading. So in a country where there is insider trading laws semi strong form of market is least likely to exist.