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A stock market analyst is able to identify mis-priced stocks by comparing the average price for...

  1. A stock market analyst is able to identify mis-priced stocks by comparing the average price for the last 10 days to the average price for the last 60 days. If this is true, what do you know about the market’s efficiency? Is it Strong, Semi-Strong or Weak form of efficient? (5 points)

  2. If a market is semi-strong form of efficient, is it also week form efficient? Explain. (5 points)

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Answer #1

Answer 1)

In an efficient market , the price of stock should be in line with the intrinsic value and investors' perceptions is also very close to the value. The stock price would be a reasonably accurate as reflection of all available information. The data mispriced stocks by comparing the average price for the last 10 days to the average price for the last 60 days. The mispricing clearly indicate the reflection of historical price in current price but not reflecting the other public and private available information in the condition.

So, the current situation doesn’t support weak form of efficiency, So, it is semi strong and strong form of efficiency.

Answer 2) In normal term weak form of efficiency is consider as subset of semi strong form efficiency , week form of efficiency is describe by reflation of historical price information while semi strong form of efficiency is reflection of public available information in current price. Historical price information is part of publically available information.

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