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Hi John,
According to chapter 2 there are 3 levels of Market efficiency:
1- strong form: The one that reflects all sorts of information related to the company.
2- Semi strong form: The one that reflects only published information (with exception of insider trading).
3- Weak form: The one that reflects information contained in the record of past prices.
I didn’t quite understand the “Weak form”. Does it mean that the price of the share is reflecting only the past news and isn’t quite updated with the latest information?
Also, as per chapter 2 page 15, last paragraph of EMH, it says” Given that there are very strict rules outlawing insider dealing, gains through such dealing must still be possible and therefore the stock market is at best only semi-strong form efficient”.
Does this mean the best level that can be achieved in realistic scenario (considering possiblities of insider trading) is semi-strong form?
or does it mean that semi-strong form is the best level of efficiency as compared to the other 2 levels?Weak form – yes, what you say is correct.
Semi-strong form – it is not the ‘best’ compared to the other 2 (strong-form would be the best). It means that in the real world it is likely to be the best that can be achieved.
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