Question

Debate 4-1 (page 123). The efficient market hypothesis (EMH) and accounting information

It has been argued that by the time financial statements are issued, the market price of shares already reflects the information contained in them; hence, accounting information is not relevant. The arguments for both debate teams should address all three forms of the EMH.

1. Present arguments that given the EMH, accounting information is irrelevant.

Answer 1

Present arguments that given the EMH, accounting information is irrelevant.

Refer to the below images for more detailed explanation.

: given the EMA accounting present information arguments that is irrelevant. Requirement : market hypothesis are There (EMA) three They forms of the Efficient are : 1. Wear form 2. Semi-strong form J. Strong form. 0 → According to the weak form the historical price of a Stock provides an unbiased estimate of the future price of the Stock. Hence, an investor cannot malce excess gains by knowledge of prior prices. under this weak form of the EnH it is not possible to to argue that accounting information is isrelevant. An investor could gain if he she has other innowledge regarding expected future performance of a company. eg. accounting information: under this form of the End accounting information is relevant. → → 2 Allording to the semi-strong form of the Enit, all poblicly available information is instantaneously imponded into secos prices. Hence, pblicly available information , such as publicly released accounting information is already reflected in the price of a share of stock and knowledge of this information would not provide an advantage to any potential investor. - If this is so investors is not publicly available be irrelevant. They Stock randomly. would and could not have information that accounting information would do just as well picking

→ According to the strong form of the EMH all information is impounded into security prices. No information, even accounting information which is not available to the public, would provide an advantage to any investor over other investors. Hence, Hence, account accounting information would not be relevant.