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Hello Sir,
When answering a question about the the how efficient is the market like the following question asking about making consistent gains .So even the market is semi strong but the investor depending on the information available he is not able to make a consistent gain.
so in case of semi-strong efficient market the investor should should beyond that available market .Does it mean he should obtain additional information like from insider trading?
or from where?
What does insider trading means .Does it mean the information from the management of the company?
Can you please make it more clear.
Thanks,
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QIf the capital market is semi-strong form efficient
A Investors will be able to make consistent gains by studying and
making use of past share price movements
B Investors will be able to make consistent gains by studying and
making use of all available public information about the shares
C Investors will be able to make consistent gains by studying and
making use of information which is not available to the public
D Investors will not be able to make consistent gains
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answerAnswer C
The semi-strong form of capital market efficiency implies that all publicly available information is reflected in a share price. Therefore, studying that information will not enable an investor to make gains. Only by studying non-public information will an investor be able to make consistent gains (insider trading).Insider training is where an investor is using information that is not available to the general public. Maybe, for example, the investor works for the company or has relatives working for the company who have told him/her things that have not been publicly announced. So for example, if an investor knew that the company was going to announce bad results then they could sell their shares while the price was still high (because after the bad results became public then the price would fall).
In a perfect world this would not be happening – all investors would have the same information and we would have strong-form efficiency – and there are laws to try and stop this happening (for example, auditors are not allowed to deal in shares of companies that they audit, because they have access to non-public information). However it is not possible to stop it happening completely and so we only have semi-strong efficiency.
Hi Mr John ,
So for dealing with share in semi-strong efficient form the all the information will be reflected in the share price.So there is no need to insider information in order to correctly deal in the market.?
So what does consistent gain mean here ?
Thanks for clarification.
No. With semi-strong form efficiency, all publicly information is reflected in the share price – not insider information. So people with inside information can make gains because they have information that most investors do not have.
Investors without inside information cannot make this kind of gain all the time – i.e. that cannot consistently make gains as a result.
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