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CMA Final · Strategic Financial Management · Efficient Market Hypothesis

Under the semi-strong form of the Efficient Market Hypothesis, which of the following strategies would be expected to earn consistent abnormal returns?

Trading on non-public inside information is the strategy that could earn abnormal returns under semi-strong efficiency. Prices already reflect all public information, such as annual reports, past prices and announcements, so only private information not yet in the price offers an advantage.

  1. ATrading on non-public inside informationCorrect
  2. BFundamental analysis of published annual reports
  3. CTechnical analysis of past price charts
  4. DBuying shares after a public dividend announcement

Explanation

Semi-strong efficiency means all public information is already in prices, so analysis of published reports, charts or public announcements cannot give consistent excess returns. Only private (inside) information could, since it is not reflected in prices unless the strong form holds.

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