Question

Identify the three elements of the Efficient Market Hypothesis then summarize in your own words.

Answer 1

Efficient market hypothesis (EMH)
1) EMH suggests that it is impossible to beat the market. In other words, technical and
fundamental analysis cannot result in risk adjusted excess returns.
EMH suggests that stocks always trade at their fair value. In other words, investors
cannot buy undervalued stocks or short sell overvalued stocks in order to make a profit.
2) EMH claims that assets prices reflect all available information.
3) There are three variants of the EMH namely the weak form, the semi-strong form,
and the strong form.
The weak form claims that prices of stocks reflect all past publicly available information.
The semi-strong form claims that prices of stocks reflect all publicly available information and prices
change instantly to new information.
The strong form claims that prices of stocks instantly reflect even hidden insider information.