Final answer:
The stronger view of the efficient market hypothesis suggests that all information is reflected in stock prices, making it impossible to outperform the market through information. The efficiency of markets in reaching equilibrium does not equate to fairness, as it does not address income inequality and individual needs. Future expectations of a stronger exchange rate can influence the current rate through investor demand.
Step-by-step explanation:
The stronger view of the efficient market hypothesis (EMH) implies that all information, both public and private, is completely reflected in stock prices at any given time. This means that no investor could consistently achieve higher returns than the market average by using any information, including insider information or investment strategies.
According to this view, stocks always trade at their fair value, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. Therefore, according to the stronger view of the EMH, any attempt to outperform the market is purely a matter of chance rather than skill.
Regarding markets' fairness and effectiveness at reaching equilibrium, the stronger view of the EMH supports the notion that markets are highly effective due to the rapid assimilation of information into market prices. However, the concept of fairness is more contentious as a market's efficiency does not necessarily lead to a fair income distribution or address the needs of all individuals within a society. For instance, a homeless person may not be able to afford housing despite market efficiency due to insufficient income.
Expectations of a stronger exchange rate in the future can indeed affect the current exchange rate. If investors believe that a currency will strengthen in the future, they may increase demand for that currency now in anticipation of future gains, thereby driving up its current value. This is known as the expectations theory in foreign exchange markets.