CFA Practice Question

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CFA Practice Question

Most academics tend to believe that the ______ form of the efficient market hypothesis is true for the widely traded S&P 500 companies.

I. weak
II. semi-strong
III. strong
Correct Answer: I and II

Since the S&P 500 companies are widely watched and analyzed, it is thought that both the weak form and semi-strong form of the EMH hold for this group of stocks in most market atmospheres.

User Contributed Comments 8

User Comment
jsheth why not iii?
jwebbs cuz acting on insider info is illegal maybe
Vadik Semi-strong implies weak, thus II is more comprehensive answer.
mordja The legality is not the issue. It is obvious that if you are the only person that knows something that will affect the price you can profit from it. Therefore we know that three can not hold true in reality.

However to put a framework around information / analysis and pricing we need to assume some form of information is priced in. II is the generally accepted consensus and this includes I, thus both are correct.

The fact that III is illegal can lead us to the conclusion that the majority believe the strong form is not true.
kutta2102 For markets to have a strong form efficiency, empirical results would have to show that no one group investors that had access to private information has achieved excess risk-adjusted returns. It has been shown that certain groups of investors have been able to do this without breaking the law. For example, specialists have access to the limit order book and have routinely found to be making excess returns.
johntan1979 Most studies support semi-strong, which includes weak form.
Shaan23 I chose II only.
chesschh you can make profit illegaly with insider info in the s&p 500
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