You discover that traffic near Wall Street affects the price

You discover that traffic near Wall Street affects the price of stocks listed on the NYSE, and that this knowledge lets you make abnormal returns. This would be a violation of which of the following: I. Strong form efficiency II. Semi-strong form efficiency III. Weak-form efficiency

a. Statement I b. Statements I and II c. Statements II and III d. None of the three e. All of the three

Solution

Strong form efficient market implies that all the public and private information is already incorporated in the stock prices and no investor can make abnormal returns.

Here, the private information leads to abnormal returns, so it is a violation of the strong form efficient market.

Semi Strong efficient market is a market where all the published information is already accounted in the prices of the stocks and no investor can earn abnormal returns using the published information.

Here, the information is unpblished and a private information and is used to earn abnormal returns which is out of the purview of the market.

Therefore, it is not the violation of Semi Strong efficient market.

considering above, the right option to the question is a, that is statement I