CA Final · Advanced Financial Management · Security Analysis
A research analyst at a Mumbai brokerage studies whether past daily price movements of shares listed on the NSE can be used to predict future prices. She finds that price changes today have no correlation with price changes yesterday, and that technical chart patterns earn no abnormal returns. Which form of the Efficient Market Hypothesis is directly supported by this finding?
The finding supports weak form efficiency. Weak form says current prices already reflect all historical price and volume data, so past price movements and technical chart patterns cannot generate abnormal returns. The data tested only past prices, not public or insider information, so stronger forms are not established.
- AWeak form efficiencyCorrect
- BSemi-strong form efficiency
- CStrong form efficiency
- DInefficiency in the weak form
Explanation
Weak form efficiency states that current prices fully reflect all past price and volume information. If past prices cannot predict future prices and chart patterns give no abnormal returns, the weak form is supported. The finding says nothing about public or private information, so semi-strong or strong form is not tested.
Did you get it right without looking?
One question tells you little. A timed set on Security Analysis shows your real accuracy, how long you take and where you lose marks.
More Security Analysis questions
- In the constant growth dividend discount model, which change would, other things equal, reduce the intrinsic value of a share?
- Meghna Pharma Ltd has a current EPS of Rs 10 and pays out 50%. Dividends grow at 20% for 2 years and then at 5% forever. Required return is …
- Which of the following findings would be regarded as an anomaly challenging the semi-strong form of the Efficient Market Hypothesis?
- Shares of Rudra Pharma trade at Rs 200. Analysts gather data over a 5-day window around an unexpected regulatory approval announced on day 0…
- Sagar Auto Ltd has a P/E multiple of 18 against an industry average of 15. Its EPS is Rs 20, and the industry P/E is considered appropriate.…
- Arvind Textiles Ltd expects an EPS of Rs 12 next year. It plans to retain 40% of earnings, and its return on equity is 15%. Using the consta…