1 answer

Explain the three forms of market efficiency under the efficient markets hypothesis.

Question:

Explain the three forms of market efficiency under the efficient markets hypothesis.


Answers

3 forms of market efficiency under the EMH :

1. In case of strong form efficiency the market already reflects all the information available in public domain. This won't give any opportunity to mutual funds or particular stocks to perform better than the market.

2. Weak form efficiency believe that past or historical performance does not affect current prices. Hence fundamental analysis of company can help mutual fund to identify undervalued and overvalued stocks.

Ability to pick undervalued stock ,mutual funds and stocks can perform better than market.

3, Semi Strong Efficient market gives an opportunity to profit from new information as the market will reflected the changes due to new information. Hence mutual funds can perform better than the market.

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