Starting in the Name of Allah, The Most Beneficent, The Most Merciful

PRESENTED BY:

MUHAMMED NAWAZ ROLL # MC11-253

Hailey college of commerce punjab university lahore

Efficient Market Hypothesis

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The proposition that securities market are efficient with the prices of securities reflecting their economic value.

EMH assumes that an efficient market requires

1- Large numbers of profit-maximizing participants

2- New information regarding individual securities.

3- Profit-maximizing investors.

The combined effect of above three assumptions leads to the

conclusion that in efficient markets

Market Efficiency Forms

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WEAK FORMS MARKET DATA

SEMISTRONG FORMS PUBLIC INFO

STRONG FORM ALL INFORMATION

Cumulative Levels Of market Efficiency And the information associated with each.

Weak Form

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Prices reflect all past price and volume data

Technical analysis, which relies on the past

history of prices, is of little or no value in

assessing future changes in price

STRATEGY Adopt

Buy and Hold

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ents

Time

Price Changes For 30 days Botox company

12-7

Ali is a broker working at the Punjab Stock Exchange. He has developed

a recent interest in investments and has no prior experience. He

observed that the price of Mohali Sports Equipment drops on Monday

and increases on Friday. On 7 January 2013, he purchased 100 shares of

MSE's stock for 11 INR per share. He was quite saddened to see that the

price was 10.5 INR per share on Friday, 11 January 2013.

Example

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Prices reflect all publicly available information

This includes information about:

Earnings

Dividends

Corporate investments

Management changes, etc.

A market that quickly incorporates newly released information (to the

public) is semi-strong efficient.

Semi strong Form

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Alex held 100 shares of Cure Inc. which he had purchased on 1 January 2013 for $25

per share. Cure Inc. is a company engaged in research and development of new

antibiotics against resistant microbes. Alex is not an active investor so he does not

checks the stock performance daily. On 14 January 2012 (Sunday), he came across an

article shared by his friend on Facebook. The article was published on 11 January 2012

(Friday). According to the article, Cure Inc. has failed in a project worth a net present

value of $20 million. Total outstanding shares of Cure Inc. are 5 million. Alex sold off his

holding for $2,050 (at $20.5 per share) in the opening hours of 15 January 2012

(monday). He was glad that he minimized his loss but towards the end of 15 January

2012, the company's stock price had even climbed to $21. He is wondering what

happened.

Example

Strong Form

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Prices reflect all information, public and

private

No group of investors should be able to earn

abnormal rates of return by using publicly and

privately available information

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Summary