Week 6 Forum Topics Chapter 7

Efficient Market Hypothesis Alabasil Course heading Abstract This paper discusses about what Efficient Market Hypothesis is, what information efficiency is, example of information efficiency, and the three forms of Efficient Market Hypothesis. The paper also discusses about why did I choose Efficient Market Hypothesis as the topic and what did I gain from writing this paper. Efficient Market Hypothesis Efficient Market Hypothesis believes that share price reflect all available (public and private) information, and thus investors would not be able to earn abnormal return on a regular basis by using private information. This is because share price reaction towards new information is instantaneous and unbiased. The effecient market hypothesis is associated with the idea of a random walk, which is a term loosely used in the finance literature to characterize a price series where all subsequent price changes represent random departures from previous prices. (Burton G. Malkiel, 2003) Information Efficiency Three major versions of the hypothesis exist weak, semi-strong and strong. The weak form Efficient Market Hypothesis claims that the trading prices of assets already reflects all available information (both past and present). The semi-strong form Efficient Market Hypothesis claims both that prices reflect all publicly available information and that