--%>

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 : Rates of Return on Investment The

    The income stream per period like a percentage of the dollar outlay for investment into a capital good is the: (1) present value of the investment good. (2) rate of economic profit. (3) interest rate. (4) rate of retu

  • Q : Determine highest incomes at specific

    Salespeople as illustrated in graph who earn percentage commissions upon the total revenue from DVD games would create their highest incomes at specific price of: (w) $50. (x) $25. (y) $10. (z) zero.

    Q : Price crosses elasticity of demand when

    When a 2% raise in the price of Kibbles causes a 1% raise in the quantity sold of Bits, in that case their price cross elasticity of demand is approximately _____ and such goods are _____. (w) -2; complements (x) 0.5; substitutes (y) 2; substitutes (z

  • Q : Define change in demand Change in

    Change in demand: When change in demand takes place due to change in factor other than price, it is termed as change in demand.

  • Q : Welfare Programs and Incentives The

    The incentive to work and earn income is probable to be greatest when the basic welfare benefit is ____ and the fundamental welfare benefit is reduced by ____ which the person earns. (w) high, the amount (x) low, the

  • Q : Compute Gini Index The areas

    The areas illustrates in this Lorenz diagram can be used to compute a Gini index as: (i) (cow + pig)/cow. (ii) cow2/(cow + pig).  (iii) pig2/(cow + pig). (iv) cow/(cow + pig) (v) (cow + horse)/pig.

    Q : Nondiscriminating monopolists in short

    Within short run equilibrium, there nondiscriminating monopolists will: (w) charge prices greater than their marginal costs. (x) produce outputs which maximize social welfare. (y) produce where their total revenues are maximized. (z)

  • Q : Cost of inputs in Determinants of demand

    I have a problem in economics on Cost of inputs in Determinants of demand. Please help me in the following question. The entire given are determinants of demand apart from. (i) Taxes and preferences. (ii) The cost of inputs. (iii) Price expectations.

  • Q : Borrower and lenders in financial

    Financial institutions like banks perform as intermediaries. They lend their savings of depositors to final borrowers, charging more interest to borrowers than they pay to depositors, who are the eventual providers of loans. How does it decrease the <

  • Q : Problem based on Human Capital Can

    Can someone help me in finding out the right answer from the given options. From a purely financial viewpoint, we should stop going to school if you: (i) Graduate from college. (ii) Have to take out educational loans at interest rates which exceed the inflation rate.