An investor, who bases all his investment decisions on information he has gathered from
published statements and comments on company plans and performance, is acting as if he
believed that the maximum level of efficiency of the capital market is ……………. form
efficient
Hi, from what i understand shouldn't the answer be not efficient at all?
Because if the answer believe he can make extra gain (my assumption on the basis of his reason to do technical analysis) by studying past data then he acts as if market is not efficient at all because the past data would already be incorporated into the share prices in weak form of efficiency.
The offical answer is weak form
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Kaplan kit (Market efficiency)
4y ago#1The answer is weak form because past information is indeed already reflected in the share price but cannot be used as an indicator of what will happen to the share price in the future because this depends on expectations of what will happen in the future.
So weak form is the maximum level of efficiency that could be the case here.
Sir I still don't get it, there's a similar question in bpp :
Sarah decides to plot past share price movements to help spot patterns and create an
investment strategy.
What does Sarah believe the stock market is?
The answer here is completely inefficient
Is the key here the wording?
4y ago#3Yes it is the wording.
Note that in the first question it asks for the maximum level of efficiency.
In the second question Sarah is simply plotting past share price movements and not studying published statements etc..
I'm sorry for taking more time from you but to clear my concept if she was studying published statements (past information incorporated in share price) and the question would simply ask for the efficiency assumed by the investor, then it would be an inefficient market right?
4y ago#5It would be more likely to be inefficient, yes :-)
Sir sorry to interrupt in this but can you explain me why will it be" inefficient" in the sarah's question if she has studied the published information in the last reply . ?studying past information will mean market is weak form right ?
whats then the difference between the very first question and this sarah question with studying published information?
4y ago#7I wrote that it would be more likely. The original question asked what the maximum level would be and it would be weak for the reasons I replied :-)
Sarah's latest post said just published statements (i.e. accounts), whereas the original post included comments on plans and performance.
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