Final answer:
High-level managers making superior returns could indicate either no violation of weak-form market efficiency, if using public information, or a violation of strong-form market efficiency if using non-public insider information.
Step-by-step explanation:
The question revolves around the efficient markets hypothesis (EMH), which proposes that stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. According to the EMH, there are three forms of market efficiency: weak-form, semi-strong, and strong-form.
When high-level managers achieve superior returns on investments in their company's stock, it may indicate that they have access to inside information and are using that to their advantage. Under the weak-form of market efficiency, all past trading information is reflected in stock prices, and thus, investors cannot achieve consistent excess returns by using investment patterns or technical analysis. If managers are outperforming the market based on historical price and volume information, it is not necessarily a violation of weak-form efficiency.
However, if these managers are leveraging unpublished, non-public information it would be a violation of strong-form market efficiency. Strong-form efficiency posits that all information, both public and private, is completely reflected in stock prices and no group of investors, including insiders, should be able to achieve consistently superior returns.