STOCK

MARKET
EFFICIENCY
WHAT IS
STOCK
MARKET
EFFICIENCY?
▸ Market efficiency
refers to the
degree to which
market prices
reflect all
available,
▸ Market efficiency was developed
in 1970 by economist Eugene
Fama, whose efficient market
hypothesis (EMH) states that an
investor can't outperform the
market, and that market
anomalies should not exist
because they will immediately be
▸ Market efficiency refers to
how well current prices
reflect all available,
relevant information about
the actual value of the
underlying assets.
▸ A truly efficient market
eliminates the possibility of
beating the market,
because any information
available to any trader is
already incorporated into
▸ As the quality and amount
of information increases,
the market becomes more
efficient reducing
opportunities for arbitrage
and above market returns.
▸ Market efficiency is the ability
of markets to incorporate
information that provides the
maximum amount of
opportunities to purchasers and
sellers of securities to effect
transactions without increasing
THREE
DEGREES
OF MARKET
EFFICIENCY
• STRONG
• SEMI-
STRONG
• WEAK
STRONG MARKET
EFFICIENCY
• Market prices reflect all
information both public
and private, building on
and incorporating the
weak form and the semi-
strong form.
SEMI-STRONG
MARKET EFFICIENCY
• Assumes that stocks adjust
quickly to absorb new
public information so that
an investor cannot benefit
over and above the market
by trading on that new
WEAK MARKET
EFFICIENCY
• Past price
movements are not
useful for predicting
future prices.
THANKS!
Any questions?