The three versions of the efficient market hypothesis are varying degrees of the same basic theory. The weak form suggests that today’s stock prices reflect all the data of past prices and that no form of technical analysis can be effectively utilized to aid investors in making trading decisions.

In weak-form efficiency, future prices cannot be predicted by analyzing prices from the past. In strong-form efficiency, share prices reflect all information, public and private, and no one can earn excess returns.

The correct answer is letter “B”: If a market is semi-strong-form efficient, it is also strong-form efficient. Explanation: Taken out of the Efficient Market Hypothesis or EMH, a semi-strong market is efficient if the price movement of a given security is reflected based on the information that was publicly available.

To test whether weak form market efficiency hypothesis holds, researchers can conduct serial correlation tests, runs test, or distribution tests for an individual security. One could also follow CAPM arguments to test multiple security expected return model (Fama 1970).

Weak form efficiency states that past prices, historical values and trends can’t predict future prices. Weak form efficiency states that stock prices reflect all current information. Advocates of weak form efficiency see limited benefit in using technical analysis or financial advisors.

Weak market. A market with few buyers and many sellers and a declining trend in prices.

Semi-strong form efficiency contends that security prices have factored in publicly-available market and that price changes to new equilibrium levels are reflections of that information. EMH states that at any given time and in a liquid market, security prices fully reflect all available information.

Semi-strong form of market efficiency exists where security prices already reflect all publicly available information and it is not possible to earn excess return. A semi-strong form encompasses a weak-form which means that if a market is semi-strong efficient, it is also weak-form efficient.

The one that is a tenet of semi-strong-form efficiency is that share prices respond immediately to new information that is made public. According to this form, investors cannot utilize fundamental analysis to generate excess returns considering that public information is already part of a stock’s current price.

Market efficiency refers to how well current prices reflect all available, relevant information about the actual value of the underlying assets. A truly efficient market eliminates the possibility of beating the market, because any information available to any trader is already incorporated into the market price.

There are four probable causes of market failures; power abuse (a monopoly or monopsony, the sole buyer of a factor of production), improper or incomplete distribution of information, externalities and public goods.

Dealing with positive externalities

1. Rules and regulations – minimum school leaving age.
2. Increasing supply – the government building of council housing to increase the stock of good quality housing.
3. Subsidy to reduce price and encourage consumption, e.g. government subsidy for rural train services.