Explain the three forms of informational efficient capital markets.

Advanced Financial Management Block Revision Mock Exams

Three forms of informational efficient capital markets:
i) Weak Form
The information available is restricted to details of past share prices, returns and trading volumes. Future prices cannot be predicted from historical price data alone and the chart list approach cannot consistently produce excess returns if the hypothesis is correct.

ii) Semi-strong form:
Share prices reflect all publicly available information. Reaction to public announcement will not produce excess returns as the information content of such announcements is reflected in share prices.

iii) Strong Form:
Share prices reflect all information whether publicly available or not.

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