Semistrong Form of the Efficient Markets Theory

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Semistrong Form of the Efficient Markets Theory

A controversial model on how markets work. It states that the market efficiently deals with nearly all information on a given security and reflects it in the price immediately. The model holds that technical analysis, fundamental analysis, and any speculative investing based upon them, are useless because any facts that might cause technical or fundamental changes are already reflected in the security price. Investors and academics disagree on how well the model works. See also: Weak form of the EMT, Strong form of the EMT.
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The much acclaimed paper on Efficient Market Hypothesis (EMH) by Fama (1970) defined market efficiency into three subsets: Weak Form Efficiency, whereby future prices cannot be predicted by past prices; Semi-Strong Efficiency, whereby future prices cannot be predicted by publically available information; and Strong Form Efficiency, whereby prices reflect all information, both public and private.
1) For a test which validates the semi-strong efficiency hypothesis with regard to the information used by security analysts, readers are referred to Davies and Canes (1978).