Market efficiency is the capacity of markets to absorb information that offers buyers and

sellers of securities the greatest number of chances to engage in transactions without

raising transaction costs. Moreover, in order to govern the functioning of a complex
economy in a timely and cost-effective manner, market efficiency shows market prices in
relation to investors' expectations at a specific moment. A truly efficient market
eliminates the possibility of outperforming the market, as all available information is
already reflected in the market price. As information quality and quantity rise, the market
becomes more efficient, lowering arbitrage and out-of-market profits. The relevance of
capital market efficiency is evaluated using three forms, including strong-form efficiency,
semi-strong-form efficiency, and weak-form efficiency. 

Regarding strong-form efficiency, the strong-form version asserts that all information,
whether public or private, is fully reflected in current stock prices and that no sort of
information can provide an investor with an edge in the market. Since both the public
and private markets have access to all information reflected in the price of a security,
this is the most powerful and significant variant of the efficient market theory. However,
the notion of strong-form market efficiency only occurs under ideal circumstances, not in
reality. In addition, a strong-form efficient security market may not be very good since it
cannot generate significant profits by trading on private knowledge that is accessible to
other investors. 

Turning to semi-strong-form efficiency, which is weaker than strong-form efficiency, it

regulates just the publicly known and reflected in share pricing information that is
accessible to all investors. Investing in this deal based on this knowledge before the
public might be lucrative for investors. Its outcome includes private information about
price modifications, causing the price of shares to fluctuate based on the day's news.
Therefore, instead of successfully using this public knowledge to generate huge returns,
investors may be exposed to significant dangers created by daily fluctuations. However,
by engaging in private insider trading, they might get a larger dividend yield. 

The weakest version of the efficient market hypothesis, known as the weak-form
efficiency, is the last one. With the exception of private and public information, the
information included in the historical prices of security is mirrored in current prices.
Trading on private or public knowledge is a viable technique to achieve big profits in a
market with the poor type of efficiency. A key consequence of the efficient market theory
is that all assets of the same risk class should be priced to produce the same anticipated
return at any given moment. This is more likely to occur the more efficient the market is.
Due to the relative efficiency of both the bond and stock markets, it follows that assets of
comparable risk will give the same anticipated return.

b. Explain

The link between the three aforementioned levels of market efficiency (strong, semi-
strong, and weak) and the three trading strategies (insider trading, technical analysis,
and fundamental analysis) is quite close. The primary reason is how their market pricing
and security rates are established. 

Strong form efficiency of market efficiency and fundamental analysis of trading

techniques constitute the initial connection. Fundamental analysis is a technique for
evaluating the true or "fair market" value of a company based on accounting ratios and
publicly accessible information. The public information includes an analysis of rival
behavior, giving consumers a reasonable estimate of the stock's worth. This may be
used to determine whether the investment is worthwhile or if it would be preferable to
sell the company's shares. Since stock values are founded on the utilization of past,
present, and future information, this sort of research is used most often to accomplish
formality. Using basic research, investors may take appropriate action in response to
the present market price. Technical analysis of trading strategy demonstrates the link
between market performance and trading strategy. 

Second, the association between these markets and trading tactics characterized by a
lack of formality and insider trading is evident. Insider trading is the activity of buying or
selling securities of a publicly listed corporation while in the knowledge of non-public
material information. It is the act of making use of confidential firm information that has
not been exposed to the general public. All market interests will gain from the use of this
kind of trade, but those with poor form efficiency may use it more efficiently. Due to the
fact that the stock price changes when new information is provided to the public,
whereas past performance has no bearing on the present fixed price. This trading
strategy is both unlawful and immoral. Investors may obtain a competitive advantage,
however, if they have access to information that is not accessible to the general public. 

Technical analysis of trading strategy demonstrates the link between market

performance and trading strategy. In technical analysis, economists analyze the
variance of previous price fluctuations and corporate investments in certain stocks to
forecast future price movements. Comparing this connection, all three forms of market
efficiency exhibit a correlation with this sort of trading method, since they all had former
investors with varying stock prices. Consequently, this might materialize as an
observable pattern, allowing technical analysis trading methods to emerge. After
identifying this pattern, an effort may be made to forecast future market prices. Thus,
technical analysis will utilize this pattern - formed by all three types of market efficiency -
to forecast the nature of future market change. This will therefore provide investors with
a competitive advantage when considering future stock purchases.