--%>

Market hypotheses

Efficient market hypotheses:

a) Weak-form efficient market hypothesis: It assumes that current stock prices reflect all security market information including the historical sequence of prices, rates of return, trading volume data and other market generated information. This hypothesis implies that past rates  of return and other historical market data have no relationship with the future rates of return. For investment purpose, this means that one would not be able to gain by using any trading rule that decides whether to buy or sell a security based on past rates of return or any other security market data.

b) Semistrong-form efficient market hypothesis: It asserts that security prices rapidly adjust to the release of all information i.e. current security prices reflect all public information. This hypothesis encompasses the weak form hypothesis because all the market information considered by the weak form hypothesis such as stock prices, rates of return and trading volume is public. Public information also includes all non-market information like earnings and dividend announcements, price to earnings ratio, stock splits, economic and political news. From the investment point of view, the investors who base their decisions on any important new information after it is public should not derive above average risk adjusted profits from their transactions.

c) Strong-form efficient market hypothesis: This contends that stock prices fully reflect all information from public and private sources. This means that no group of investors has monopolistic access to information relevant to the formation of prices. From investment point of view, no group of investors should be able to consistently derive above average risk adjusted rates of return.

   Related Questions in Microeconomics

  • Q : Prices and sales of normal goods The

    The growth of per capita national income would most likely rise the: (i) Prices of lard and employed tires. (ii) Federal budget deficit. (iii) Prices and sales of the luxury cars. (iv) Supply of untrained labor. Ca

  • Q : Determine total variable cost of a firm

    This firm’s total variable cost (TVC) equals area as: (w) 0phq2. (x) daef. (y) 0bgq2 minus area daef. (z) obgq2.

    Q : Distorted competitive workings of the

    The competitive workings of the market for soy beans would be distorted when: (1) Europe experiences a severe drought and has paltry harvests this year. (2) Ethiopia imports soy beans to feed its hungry masses. (3) the U.S. imposes a soy bean embargo forbidding export

  • Q : Negatively-sloped straight line in

    When a demand curve is a negatively-sloped straight line, in that case demand is perfectly: (w) elastic where quantity demanded is zero. (x) elastic where price is zero. (y) inelastic where quantity demanded is zero. (z) elastic or inelastic all over

  • Q : Market structure in barriers of entry A

    A market structure in that barriers of entry tend to be important, with sales being dominated by some large firms is: (w) a monopoly market. (x) a monopolistically competitive market. (y) an oligopoly. (z) perfectly competitive market.

    Q : Why demand curve face monopolistically

    Why is demand curve facing a monopolistically competitive firm probable to be very elastic?

  • Q : Market hypotheses Efficient market

    Efficient market hypotheses:a) Weak-form efficient market hypothesis: It assumes that current stock prices reflect all security market information including the historical sequence of prices, rates of return, trad

  • Q : Why are buyers and sellers forced to be

    Several buyers and sellers are forced to be price-takers since: (w) vigorous competition maintains individuals from noticeably influencing the market. (x) only monopoly firms adjust quantities. (y) markets adjust slowly. (z) quantity adjustment is not

  • Q : Determinants of genuine Demand The

    The demand for authentic leather footballs would tend to rise if: (1) Prices for football pads and cleats reduced. (2) Cheap footballs recently molded from the synthetic fibers demonstrated enhanced durability and performance. (3) Latest records were set for injuries

  • Q : Define legal tender money Legal tender

    Legal tender money: Money which is declared legally as the medium of exchange by government is termed as legal tender money.