Sub: Finance Topic: Market Hypothesis
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, would give us no useful clues as to what it will do today ortomorrow. Those who believe that weak-form efficiency exists also believethat technical
analysts, also known as “chartists,” are wasting their time.
Semi strong-Form Efficiency
The semi-strong form of the EMH states that current market prices reflectall publicly available information. Therefore, if semi-strong-form efficiency exists, it would do no good to pore over annual reports or other publisheddata because market prices would have adjusted to any good or bad newscontained in such reports back when the news came out. With semi-strong-form efficiency, investors should expect to earn the returnspredicted by the SML, but they should not expect to do any better or worseother than by chance. Another implication of semi-strong-form efficiency is that whenever information is released to the public, stock prices willrespond only if the information is different from what had been expected.
, if a company announces a 30% increase in earnings and if that increase is about what analysts had been expecting, then the
announcement should have little or no effect on the company’s stock
price.On the other hand, the stock price would probably fall if analysts hadexpected earnings to increase by more than 30%, but it probably wouldrise if they had expected a smaller increase.