7.09.2005

Q&A: Which form of the efficient market hypothesis...

...is widely believed to be true for S&P 500?

both the weak form and semi-strong form of EMH, since S&P 500 is one of the most widely tracked and analyzed index.

Bonus Points

  • Three versions of the EMH: differ only in how each defines the meaning of "all available information"
    • The weak-form hypothesis: "all available information" refers to market data, like past prices, trading volume. Implies trend analysis is meaningless.
    • The semistrong-form hypothesis: in additon to market data, it also refers to all publicly available information regarding the prospects of a firm, like product line, quality of management, patents held, earning forecasts. Implies that an investor cannot achieve risk-adjusted excess returns using important public information.
    • The strong-form hypothesis: in additon to the above, it includes insider information. Assumes perfect markets, in which all information is cost free and available to everyone at the same time. In contrast, in an efficient market prices adjust rapidly to new public information.

Category: C++ Quant > Financial Markets

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