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
Q. Graphic Presentation of Net Operating Income Approach ? Graphic Presentation of NOI (Net Operating Income) Approach: - NOI (Net Operating Income) approach is explained graph

Break Even Period: It is also important to compare the returns from the equity stock and the bond to determine the profitability of both investments. Assume that the dividend p

Q. Example on Bills of exchange? ARG Co will be apprehensive to protect the sterling value of its expected dollar receipt. The quoted forward rates demonstrate that the dollar

Why does money have time value? Positive interest rates point toward that money has time value.  When one person lets one more borrow money, the first person needs compensation

Q. Disadvantages of just-in-time inventory management? A JIT inventory management system mayn't run as smoothly in practice as theory may predict since there may be little room

Your broker calls to offer you the investment opportunity of a lifetime, the chance to invest in mortgage-backed securities. The broker explains that these securities are entitled

Empirical Measurement of Liquidity: The number of days a particular share is being traded reflects the liquidity of the market. If it is traded actively on 50% of the days when th

We defined the conversion premium as the difference between the market price of the convertible and the conversion value. The conversion premium ratio tells us ab

ON THE BASIS OF TIME • Long term budget :  as per the National Association of Accountants, America, a long term budget is a systematic and formalized process for purposeful co

comparative analysis on these two food retailing giants