If stock prices fully reflect al information contained in past trading data what does this indicate about the markets efficiency
Added by Meghan R.
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Market efficiency refers to how well stock prices reflect all available information. There are three forms of market efficiency: weak, semi-strong, and strong. Show more…
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identify the form of capital marker efficiency under the efficient market hypothesis describe in the following statements current markets price reflect all information contained in past price this statement is consistent with strong form efficiency semi-strong form efficiency weak form efficiency
Kenny M.
True or False: The efficient markets hypothesis holds only if all investors are rational. Almost all financial theory and decision models assume that the financial markets are efficient. The informational efficiency of financial markets determines the ability of investors to "beat" the market and earn excess (or abnormal) returns on their investments. If the markets are efficient, they will react rapidly as new relevant information becomes available. Financial theorists have identified three levels of informational efficiency that reflect what information is incorporated in stock prices. Consider the following statement, and identify the form of capital market efficiency under the efficient market hypothesis based on this statement: Current market prices reflect all information contained in past price movements. This statement is consistent with: Strong-form efficiency Semi-strong form efficiency Weak-form efficiency Consider that there is a strong-form of efficiency in the markets. A pharmaceutical company announces that it has received Federal Drug Administration approval for a new allergy drug that completely prevents hay fever. The consensus analyst forecast for the company's earnings per share (EPS) is $5.00, and insiders agree with analyst expectations. They too expect that, with this new drug, earnings will drive the EPS to $5.00. What will happen when the company releases its next earnings report? The stock price will increase and settle at a new equilibrium level. The stock price will not change because the market already incorporated that information in the stock price when the announcement about FDA approval was made. There will be some volatility in the stock price when the earnings report is released; it is difficult to determine the impact on the stock price.
Manasvee S.
Which of the following is NOT correct with respect to the Efficient Market Hypothesis? If markets are semi-strong form efficient, then fundamental analysts would not be able to earn abnormally good returns, after considering the risk they assume. Semi-strong form efficiency says that if a company announces a labor strike, the stock price very quickly adjusts downward. Evidence suggests that markets are NOT strong form efficient, since insiders could make abnormally good returns trading on private information. However, that is illegal. Semi-strong form efficiency says that when Stryker makes an earnings announcement, the stock price quickly reflects the new information. Weak form efficiency says that technical analysts who study charts of stock prices and volumes can regularly make abnormally good returns, after considering the risk they assume.
Rashmi S.
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