Chapter - 19

Capital Market Efficiency and Capital Markets in India

Definition

Capital Market Efficiency may be defined as the ability of securities to reflect and incorporate all relevant information in their prices. Three forms of capital market efficiency may be distinguished –
1. 2. 3.

Weak form of efficiency Semi-strong form of efficiency Strong form of efficiency

Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd.

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Weak Form of Efficiency
The security prices reflect all past information about the price movements.

Semi-Strong Form of Efficiency
The security prices reflect all public ally available information about the price movements.

Strong Form of Efficiency
The security prices reflect all published and unpublished public and private information about the price movements.

Attributes of a Perfect Capital Market
 No entry Barriers.  Large Number of Buyers and Sellers.  Divisibility of financial assets.  Absence of transaction costs.  No tax differences.  Free Trading.

Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd.

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