Question

Match the following EMH forms with their corresponding characteristics:

A. Which form of EMH believes in technical analysis and assumes that past market prices are reflected in current prices?
B. Which form of EMH believes in fundamental analysis and asserts that all public information is already reflected in the price, making it difficult to gain an advantage?
C. Which form of EMH suggests that insider information will not provide an edge in the market because all public and private information is already incorporated into prices?"

Answer 1

The Efficient Market Hypothesis outlines three forms: the Weak Form, which is associated with technical analysis; the Semi-Strong Form, which relates to fundamental analysis; and the Strong Form, which suggests that all public and private information is reflected in stock prices.

Step-by-step explanation:

The forms of the Efficient Market Hypothesis (EMH) each have unique characteristics:

• A. The form of EMH that believes in technical analysis and assumes that past market prices are reflected in current prices is the Weak Form EMH.
• B. The form of EMH that believes in fundamental analysis and asserts that all public information is already reflected in the price, making it difficult to gain an advantage, is the Semi-Strong Form EMH.
• C. The form of EMH that suggests that insider information will not provide an edge in the market because all public and private information is already incorporated into prices is the Strong Form EMH.

Each form represents a differing degree of market efficiency, leading to different implications for investing strategies such as technical analysis, fundamental analysis, and the use of private information.