Part A (5 marks)
Describe one common test for the weak form and one for the semi-strong form of the Efficient
Market Hypothesis (EMH).
Part B (5 marks)
On Thursday, the shares of Globalize Solutions were trading at $20. The CEO was happy with this
price as she felt it reflected the prospects of the firm (future dividend growth and required rate of
return). The firm's engineers worked all Thursday night to finish a top secret project, which will
dramatically improve the quality of Globalize's products and solutions and result in a huge increase
in sales going forward. On Friday evening, you have dinner with the CEO (who you play squash with)
who complains that "markets cannot be efficient" because the stock price hasn't changed (still
trading at $20) despite the dramatic change in the firm's future.
As a finance guru, provide the CEO with two different (and opposing) explanations about why there
might not have been a reaction on Friday.