Answer to Question #285733 in Finance for irfan

Question

The Efficient Market Hypothesis (EMH) is a theory that explores the relationship between the availability of information and asset prices. It argues that all available information is already reflected in the price of share and therefore, it is impossible to beat the market over the long-term. Briefly explain the sub-hypotheses in EMH.

Answer 1

The sub-hypotheses in Efficient Market Hypothesis include:

• Strong efficiency - it states that all information, public or otherwise, is completely accounted for in current stock prices, and no type of information can give an investor an advantage on the market.
• Semi-strong efficiency - this form of EMH implies that all public, but not non-public, information is calculated into a stock's current share price.
• Weak efficiency - it suggests that all past prices of a stock are reflected in today's stock price. thus, technical analysis cannot be used to predict and beat the market.