ECMC49F Market Efficiency Hypothesis Practice …

< strong >ECMC49Fstrong > < strong >Marketstrong > < strong >Efficiencystrong > < strong >Hypothesisstrong > < strong >Practicestrong > Questions Date: Nov 15, 2005 [1] How to define an efficient < strong >Marketstrong > ? It is a < strong >Marketstrong > where current prices reflect/incorporate all available information. [2] Describe the 3 forms of efficient < strong >Marketstrong > < strong >Hypothesisstrong > . [a] Weak- < strong >formstrong > : Prices already reflect all information contained in the past history of prices. [b] < strong >semistrong > - strong < strong >formstrong > : Prices not only reflect the history of prices but all publicly available information. [c] strong from: Prices reflect all available information, regardless of them being public or private/insider. [3] Does < strong >Marketstrong > < strong >Efficiencystrong > mean you can randomly pick stocks from a stock exchange to < strong >formstrong > your portfolio? As I said in class, all that the < strong >Marketstrong > < strong >Efficiencystrong > < strong >Hypothesisstrong > implies is that prices should be correct signals because it has already incorporated all available information.

entire sets of information used in the strong-form also includes the set of information used in semi-strong form and weak-form. But the set of information used in weak-form does not include the

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