Semi-Strong form level of Efficiency

This level states that share prices reflects all available public information. (past and present information). If the market has achieved this level, then fundamental analysis will not enable investors to earn consistently higher than average returns.  Fundamental analysis involves the study of company’s accounts to determine its theoretical value and thereby find any undervalued share.  Fundamental theory states that every share in the market has an intrinsic value, which is equal to the present value of cash flows expected from the security.
 
Tests to prove semi-strong form of efficiency have concentrated on the ability of the market to anticipate share price changes before new information is formally announced. These tests are referred to as Event Studies. E.g. if two companies plans to merge, share prices of the 2 companies will change once the merger plans are made public. The market would show semi-strong form of efficiency if it were able to anticipate such changes so that share prices of the company would change in advance of the merger plans being confirmed.  Other events that can affect share prices are:

a) Stock splits

b) Death of CEO of company

c) Investment in major profitable projects

d) Changes in dividend policy, etc