What is the efficient markets hypothesis what are its three

What is the efficient markets hypothesis, what are its three forms, and what are its implications?

Solution

Efficient market theory says that share price reflects all information and generating extra return isn\'t possible. It says that neither technical knowledge nor fundamental knowledge would help in generating alpha returns . Thus it makes investors not to buy undervalued stocks and neither they can sell at overly priced.

Types of market forms :

1. Weak form , it says that stock prices are reflecting all market information. Thus one investor can\'t buy and other can\'t sell on the same available market information.

2. Semi strong , it says that stock prices reflect publicly information that new information gets absorbed in stock price and no investor can\'t take benefit of new public information.

3. Strong , it states that share price reflects all public and private information . So even an investor given private information, he won\'t be able to take benefit of that because in this market that private information too gets reflected in stock price