semistrong and strong forms adjust prices for market and non market information…any example about how do they adjust for “non market info”?
the semistrong form is not dealing with material non-public information. As you know, the strong-form addresses material non-public information and there is no test that positively confirm the strong form EMH) Refer the CFAI book for various tests against the vaious forms of EMH) eg: run tests, auto corelation, event tests, return predictions etc etc. This is not a very easy topic. So read as many times you can. Good luck.
Regarding the semi-strong form of the EMH, event studies like stock-splits, IPOS, accounting changes etc have generated unanimous results, while exchange listing studies have generated mixed results. In contrast, studies that predict the rates of returns over time or for a cross section of stocks presented results that support the semi-strong form of the EMH. As for the strong form of the EMH, the results for the corporate insiders and stock exchange specialists do not support the hypothesis as these 2 groups have monopolistic access to important info that is used to gain above-average returns. However, studies done on money managers generated mixed support. Some money managers (those in the non-mutual fund universe) generated returns that beat the Russell 3000 index but equity mutual funds generated results tthat are consistent with the EMH for long term periods. Therefore: Weak Form: Technical Analysis is worthless - exceptional profits can’t be made from analysis of previous prices. Semi-Strong: Fundamental Analysis doesn’t generate exceptional returns - all publicly available information (financial statements etc) is already priced into the market value of stocks. Strong: All information, public AND nonpublic is priced into stock market values. This says that even with insider information, one can’t make extraordinary profits. Weak-form has been shown to be correct. Semi-Strong form is HIGHLY debated (convincing evidence exists for efficiency, but anomalies do exist). Strong Form is a sometime possible (however is “prevented” with insider trading laws).
> Strong Form is a sometime possible (however is “prevented” with insider trading laws). I agree with all that you said except this part. Strong-form does NOT argue for preventing insider trading. It takes it head on! It says that markets can remain efficient regardless of whether there is or there is not insider trading.
Dreary, just to be clear, the strong-frm states that all relevant information, including that which is privately held, is reflected in the share price. Here the focus is on insider trading, in which a few privileged individuals (for example directors) are able to trade in shares, as they know more than the normal investor in the market. In a strong-form efficient market even insiders are unable to make abnormal profits (note that the market is acknowledged as being inefficient at this level of definition).
That’s the missing concept! In a strong-form efficient market even insiders are unable to make abnormal profits. Period.
But you can have some stars such as Buffet who can constantly beat the market… Behavioral finance… 
That’s not about insider trading, that’s about anomolies, etc. But in any case, when any thing like this happens (like when you say that insiders do make abnormal profits), just remember that it simply means that you don’t have a strong-form efficient market. That is, abnormal profits indicate that market is NOT strongly efficient. Abnormal profits do not invalidate strong-form efficiency!
ok thank you Dreary!! I like this type of conversations… I think they are always of dual benefits!
Dreary Wrote: ------------------------------------------------------- > That is, abnormal profits indicate that market is > NOT strongly efficient. Abnormal profits do not > invalidate strong-form efficiency! Scratches head… That the earth seems to be round does not invalidate the notion of flat earth. It’s still reasonable to talk about it, even if it doesn’t exist. I’ve always wondered what it would look like from below.
Why can’t humans comprehend the notion of an infinite space? It’s such a non human concept, isn’t it? Down to earth, we cannot comprehend the existence of a strong-form market. Is it because we are humans, or because it is outlandish?
I think because it is against human behaviors…
I’ve just read all the messages and I just loved all the discussion !!!
Ya this was rather good.