A valid test of the weak form of the EMH should incorporate which of the following ? 1. Only publicly available data 2. An estimate of all transaction costs 3. A risk adjustment of returns A. 1 & 2 B. 2 & 3 c. 1,2 & 3
By process of elimination, B. Publicly available data is for semi-strong form of EMH. Weak form only uses market data.
All three must be incorporated. The absence of each has been used to criticize research on the EMH. Some studies used information that was not available to investors at the time the historical data was evaluated. Many studies did not explicitly account for transaction costs, even though these would clearly reduce profits. Finally, risk adjustments must be made. question courtesy: analyst notes
The problem with all three must be incorporated is that the weak EMH is not supposed to take into account ALL public information, but only those that are market related. My answer would have been (2)
I actually think I came across a similar question when doing Schweser, and got it wrong too… Anyways, this would be the kind of question that hopefully won’t be tested since it’s pretty ambiguous.
I think SASDF is correct look semistrong tests indicate that all the public info is reflected whereas weak EMH stresses that all historic info is present in security price…so B is also my choice