--%>

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 : Inefficiency of market equilibrium When

    When firms have market power although do not price discriminate perfectly, in that case the market equilibrium will be inefficient since: (w) P = AC = MC. (x) total revenue equals total costs [TR = TC]. (y) MSB = P > MC = MSC. (z)

  • Q : Explain about term market failure The

    The phrase "market failure" refers to: (w) the failure of market economies to deal with social problems. (x) the Stock Market Crash of 1929. (y) cases where supplies and demands within private markets yield inefficiency, excessive or inequity instabil

  • Q : Analytic time and profit maximization

    Firm A in below illustration of figure maximizes profit and is: (1) demonstrated as operating in the long run. (2) capable of reaping economic profit of P2P1de, since only in the short run. (3) incurring economic losses equivalent to fixed costs of P3

  • Q : Charge price similar to marginal cost

    When a profit-maximizing monopolist who does not price discriminate charges a price equal to its marginal cost, this will: (w) minimize average cost and generate zero economic profit. (x) minimize average cost and gen

  • Q : Wage of firm elasticity of demand for

    A firm’s wage elasticity of demand for labor is least influenced by: (1) how much time the firm has to adjust to changing wages. (2) the proportion of labor’s share of the total costs.  (3) the ease of substitution in between capital

  • Q : Firm under perfect competition The firm

    The firm beneath perfect competition is a price taker by the reasons shown below:A) Number of firms: The number of firms beneath perfect competition is so big that no individual firm by changing sale, can cause an

  • Q : Selling product below cost by predatory

    Nintendo Co. of Japan has been accused of discarding its products (as selling below cost) upon the U.S. market that harms U.S. producers. When true, it is an illustration of: (w) excessive international competition. (x) protectionism. (y) aggressive advertising. (z) p

  • Q : Distribution of income-inequitable

    Reliance on private demands and supplies to allocate resources and goods is least specific to yield an economically inefficient solution when: (i) producers have significant monopoly power. (ii) a good is nonrival and

  • Q : Contribution Standard for Income

    Staunch defenders of the contribution standard for income distribution would not argue that: (w) people must receive income at least commensurate along with survival needs. (x) equity requires people to be rewarded as per their marginal productivity.

  • Q : Elasticity of Demand Elasticity of

    Elasticity of Demand: The law of demand elucidates that demand will change due to a change in the price of the commodity. However it does not elucidate the rate at w