Weak form level of efficiency-forms of efficiency, Financial Management

Weak form level of efficiency

This level states that share prices fully reflect information in historic share price movement and patterns (past information/historic information).  If this hypothesis is correct, then, it should be possible to predict future share price movement from historical patterns. E.g. If the company’s shares have increased steadily over the past few months to the current price of Shs.30, then this price will already fully reflect the information about the company’s growth and therefore the next change in share prices could either be upward, downward or constant with equal probability.  It therefore follows that technical analysis or Chartism will not enable investors to make arbitrage profits. In markets that have achieved this level then security prices follow a trendles random walk.

Studies to test this level have been based on the principle that:

  • The share price changes are random
  • That there is no connection between share price movement and new share price changes.  It is possible to prove statistically that there is no correlation between successive changes in price of shares and therefore trend in share price changes cannot be detected. This can be done by using serial correlation (or auto-correlation) test such as Durbin Watson Statistics.


Posted Date: 12/8/2012 7:15:07 AM | Location : United States

Related Discussions:- Weak form level of efficiency-forms of efficiency, Assignment Help, Ask Question on Weak form level of efficiency-forms of efficiency, Get Answer, Expert's Help, Weak form level of efficiency-forms of efficiency Discussions

Write discussion on Weak form level of efficiency-forms of efficiency
Your posts are moderated
Related Questions
Cash flow analysis helps an analyst to identify certain financial difficulties which cannot be identified using the above ratios.  A firm may be shown

Q. Show the Net Operating Income approach ? The NOI (Net Operating Income) approach advocates that the cost of equity increases with the increase in the financial leverage. Thi

What are the Government Securities Government is one of the biggest borrowers from capital and money market. We have already taken a look at money market securities offered by

Expalin the term Company Objectives Financial management is anxious with making decisions about the provision and use of a firm's finances. A rational method to decision-making

What is Planning Internal auditors must plan the audit work so as to perform the audit in an effective manner.There must be sufficient audit programmes in existence which set o

Q. What are assumptions of Walters dividend model? 1. Constant Return and Cost of Capital: - The Walter' model presume that the firm's rate of return and its cost of capital ar

Why firms need funds at certain episodic events A related aspect was that firms need funds at certain episodic events like merger, reorganization, liquidation and soon. A detai

how to do assignments based on these topics more specifically?

Mr. Moore will be 35 years at the end of the month and he wishes to retire in 25 years. He plans to invest in a mutual fund earning 7.5 percent annual return compounded monthly an

Investor's Considerations As mentioned above, every investor before taking an investment decision, must consider the following aspects: Risk: The primary consideration for t