Explain Weak-form deficiency in Efficient Markets Hypothesis

Question

Explain Weak-form deficiency in Efficient Markets Hypothesis.

Answer 1

Weak-form efficiency: In weak-form efficiency excess returns can’t be made by using investment strategies based upon historical prices or the other historical financial data. If such form of efficiency is true then this will not be possible to make excess returns using methods like technical analysis. The trading strategy incorporating historical data, like price and volume information, will not systematically outperform a buy-and-hold strategy. This is frequently said that current prices accurately incorporate all historical information, and that current prices are the best estimation of the value of the investment. Therefore prices will respond to news, but when this news is random then price changes will also be random. Means technical analysis will not be profitable.