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Equity InvestmentsModule 3 of 6

Market Efficiency

6

Concepts

0

Formulas

1

Decisions

2

Quiz Questions

Key Concepts

6 concepts covered in this module.

Efficient Market Hypothesis (EMH)

Security prices fully reflect all available information. Prices adjust rapidly to new information.

Weak Form

Prices reflect all past market data. Technical analysis cannot earn excess returns.

Semi-Strong Form

Prices reflect all publicly available info. Neither technical nor fundamental analysis earns excess returns.

Strong Form

Prices reflect ALL info including private/insider info. Even insiders cannot earn excess returns (not supported empirically).

Market Anomalies

January effect, size effect, value effect, momentum, post-earnings announcement drift. May be real or data-mining artifacts.

Behavioral Finance

Loss aversion, overconfidence, herding, information cascades. Investor psychology can create mispricings.

Decision Frameworks

1 decision frameworks to guide your analysis.

Implications for investment strategy?

  • Weak efficient: fundamental analysis can work, but not technical
  • Semi-strong: only insider info gives edge; use passive strategies
  • Strong efficient: no analysis adds value; index everything

Mind Map

Visual overview of how concepts connect in this module.

Market Efficiency
EMH Forms
Weak: past prices
Semi-strong: public info
Strong: all info (including private)
Anomalies
Size effect
Value effect
Momentum
January effect
Post-earnings drift
Behavioral Finance
Loss aversion
Overconfidence
Herding
Anchoring
Information cascades

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Security Market Indexes

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Overview of Equity Securities