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
Clean Opinion - AUDIT opinion not qualified for any material scope restrictions nor departures from GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). Also called UNQUALIFIED OPINION

RWE Enterprises is a small manufacturer in Adelaide South Australia, feed suppliments for cattle. New production line NPV, Payback period and discounted payback period

agency relationship between shareholders and auditors


Q. Demerits of net present value method? (i) Difficult to Understand as well as Implement:- This method is tricky to understand as well as implement in comparison to the paybac

Q. Determine the financial requirements of the business ? Decisive the Financial Needs: - The initial task of the financial management is to estimate and determine the financia

Example: - MM Foam Company at present has 5000 outstanding shares selling at Rs. 100 each. The firm suppose to have a net earning of Rs. 50000 as well as contemplating a dividend

Bond's potential returns are calculated using measures like Yield to Maturity (YTM) and cash flow yield. Both these measures are not free from s

1. Why do you think you are asked to perform valuation given an array of discount rates? a. Would it not be more accurate to utilize, for example, CAPM to calculate cost of equi

If firm A has a higher debt-to-equity ratio than firm B then that means what