Efficient Market Hypothesis

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Efficient Market Hypothesis

States that all relevant information is fully and immediately reflected in a security's market price, thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis exist: weak form (stock prices reflect all past information in prices), semistrong form (stock prices reflect all past and current publicly available information), and strong form (stock prices reflect all relevant information, including information not yet disclosed to the general public, such as insider information).

Efficient Market Theory

A controversial model on how markets work. It states that the market efficiently deals with 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 on them are useless. The model has three forms: weak efficiency, which holds that technical analysis is ineffective, semi-strong efficiency, which holds that fundamental analysis is ineffective, and strong efficiency, which states that even insider information is immediately reflected in the security prices. Investors and academics disagree on how well the model works.
References in periodicals archive ?
The EMH can be classified into three forms: weak-form, semi-strong form and strong form (Roberts 1959).
The empirical research found that emerging markets are not efficient in semi-strong form or strong form.
Testing weak and semi-strong form efficiency of stock exchanges in European Monetary Union countries: Panel Data causality and Co integration Analysis, International Journal of Economic and Administrative Studies 1(1): 67-82.
Tests of semi-strong form efficiency (Fama, Fisher, Jensen, and Roll, 1969; Ball and Brown, 1968; Aharony and Swary, 1980, 1981; Joy, Litzenberger, and McEnally, 1977; Watts, 1978; Patell and Wolfson 1984; Scholes, 1972; Kraus and Stoll, 1972; Mikkelson and Partch, 1985; Dann, Mayers, and Raab, 1977) document the claim that no investor can earn an above normal return on publicly available information such as accounting statements, stock splits, dividend announcements, sale of stock announcements, repurchase of stock announcements, block trades, and earnings announcements.
For the semi-strong form of market efficiency, the information set is all publicly available information.
We believe that our critique may apply to SVARs that include financial market variables that are likely to be efficient in the weak form or in the semi-strong form of the EMH, such as stock prices, interest rates, or possibly exchange rates.
That is, short-term interest rates (and interest rates, more generally) are likely to satisfy the conditions for the semi-strong form of market efficiency.
A study in the prestigious Financial Analysts Journal by Khanna, examined the question of semi-strong form of market efficiency in the early part of the 20th century.
It summarizes the main results of studies that test the semi-strong form of the Efficient Market Hypothesis and explains and interprets the studies used to test its strong form.
Semi-strong form, which states that all publicly available information regarding the prospects of the firm must be reflected in the stock price.
This paper reviews the market efficiency in semi-strong form with reference to companies' announced bonus issues in India during the period of 2004-5.
By investigating the efficiency of China's stock market in accordance with the theoretical framework of the Efficient Market Hypothesis, this book focuses on weak form and semi-strong form market efficiency.