We have weak form, semi-strong, and strong. I know the description of each form, but what does it mean? Thanks
If you believe the weak form or stronger, you don’t think that technical analysis provides any value. If you believe the semi-strong form or stronger, you don’t accept that fundamental research provides any value. If you believe the strong form, you think that insider trading laws are unnecessary. The more efficient you think the market is, the more you should just be buying and holding index funds. The efficient market hypothesis is not a bad first-approximation of markets; the real question is whether it makes sense as a second and third approximation. Realize also that you may be able to accept that certain markets (say large-cap stocks) may be very efficient, but that other markets might not be. For example, it’s difficult to figure out what the fundamental value of a currency should be, so these markets might not be as efficient. Small-cap stocks with little analyst coverage may not be as efficient as large caps, and provide more opportunity for fundamental analysts. The CFA institute generally seems to favor the weak form - that technical analysis doesn’t add value, but that fundamental analysis can - otherwise all that FSA stuff would be kinda pointless.
Bchad does a great job explaining. I’ll also add that the CFAI texts seem to favor Semi Strong - Strong Form analysis. Due to the nature of efficient markets, investment professionals should evalute securities on a portfolio basis rather than an individual one. Portfolio management is the main goal of attaining the Charter rather than being able to effectively pick the undervalued stocks/bonds.
Thank you Dr. BDog, Great explanation