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Finance & Accounting
Pages 5 (1255 words)
Name Professor’s Name Course Date Answer 1 There are three forms of stock market efficiencies which include: - weak, semi-strong and strong forms of efficiencies. Weak form efficiency is one of the three degrees of efficient market hypothesis (EMH) that claims all the past prices of stock as they are reflected in today’s stock prices.
semi-strong form of efficiency is a class of EMH which claims that all public information is calculated into a stock’s current price hence there is no way either fundamental or technical analysis is applicable to achieve superior gains. It claims only non-publicly available information can be used by investors to earn abnormal returns on their investments as all the other remaining information is accounted for in the prices of the stocks and no fundamental or technical analysis will result into above normal returns. Strong form efficiency is the strongest as the name suggests as it states all the information in a stock market irrespective of whether public or private. All such information is accounted for in the stock price and not even insider information could give an investor advantage hence profits exceeding normal returns cannot be made regardless of the amount of research or information available to the investors. If a company trades its shares in a stock market with a semi-strong efficient market, the investors are likely to use the privately available information to make abnormal returns on their investment. Answer 2 The increase of the interest rates by the central bank results into loans from commercial banks being expensive as they also raise their interest rates to cover for the rise by the central bank. ...
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