Question

Weak form efficiency is best defined as a market where current prices are based on A. totally rational decisions. B. historical prices. C. information known to any person or organization. D. all publicly available information. E. irrational decisions by amateur investor

Answer 1

The correct answer is letter "B": historical prices.

Step-by-step explanation:

American Economist Eugene Fama (born in 1939) proposed the Efficient Market Hypothesis (EMH) stating that it is impossible to beat the market. There are three types of EMH: The Weak, Strong, and Semi-Strong EMH. The Weak form of the EMH suggests that current stock prices reflect all the data of past prices and technical analysis is useless to predict stock price fluctuations.

Answer 2

Answer: E

Explanation:

Weak form efficiency advocates that past price movements, earnings and volume data does not affect the price of stock and therefore cannot be used in the prediction of its future direction.

Weak form efficiency is also called random walk theory. It states that the prices of future securities are random and past events does not affect the prices. Advocates believe every information needed can be found in the stock prices and there is no need for past information. It is an irrational decision by amateur investors.