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Which of the following statements about capital market efficiency is/are correct?
(1) Insider information cannot be used to make abnormal gains in a strong form efficient capital market
(2) In a weak form efficient capital market, Ring Co’s share price reacts to new information the day after it is announced
(3) Ring Co’s share price reacts quickly and accurately to newly-released information in a semi-strong form efficient capital marketA 1 and 2 only
B 1 and 3 only
C 3 only
D 1, 2 and 3I was completely blank at this question Sir. Can you please help me explaining this? Thank you!
1 is correct for the reasons explained in our free lecture notes on market efficiency.
2 is not correct because although the price will react to new information there is not reason why it should be ‘the day after it is announced’.
3 is correct in that a semi-strong market does react quickly to newly released information.I get your answer. Thanks 🙂
Sir, I have watched your lecture on this but I can’t really get that how the price reacts to new information available about the company & how the shares price trading in the stock market changes.
1) Weak form is where the price reacts to new information about the company but when the new information is adjusted in the price (I don’t know)
2) Semi-Strong form is where the price is quickly adjusted as new information reaches stock market (but when the price will be adjusted like in a day or two – I don’t know)
3) Strong form is where the price has already adjusted to every information available about the company in the price of its shares so there is not a chance of any change in the share price.
Please correct me if I am wrong!
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