Which of the following statements is correct? A. Semistrong-form market efficien

Question

Which of the following statements is correct?

A. Semistrong-form market efficiency implies that as soon as any public or private information comes into being it is incorporated into stock prices.

B. Weak-form market efficiency implies that recent trends in stock prices are of no use in predicting future stock prices.

C. Market efficiency implies that all stocks should have the same expected return.

D. According to strong-form market efficiency, insiders would find it possible to consistently earn abnormal returns in the stock market even if they have superior knowledge about the company.

E. Studies of the Efficient Markets Hypothesis suggest that neither the weak-form nor the semi-strong forms of efficiency hold, especially for larger companies. However, the market appears to be strong-form efficient because institutional traders make abnormal profits.

Explanation / Answer

EMH comes in 3 forms:
1) Weak form:Past price history is of little use in earning excess profits.
2) Semi-strong: Past history and fundamental public info is of little use in earning excess profits.
3) Strong: Even inside, non-public information is of little use in earning excess profits.

Therefor:
a) False-Private non-public info is useful under semi-strong.
b) True
c) False-Depends on risk of individual security
d) False-Even insiders should not earn abnormal, superior, or excess returns
e) False-Under strong form, traders should not earn abnormal profits.

B is the only Correct statement

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