Weak 11 - Strong-form Efficiency

Question 1

Define strong-form efficiency

Answer 1

Strong-form efficiency would exist if it were impossible to make abnormal profits by relying on the analysis of information available only to insiders

Question 2

Define strong-form efficiency simply

Answer 2

Even if someone had access to exclusive insider knowledge (e.g., upcoming earnings results, merger plans, or other confidential corporate info), they still couldn’t consistently make abnormal profits because the market has already priced in everything.

Question 3

What is the price like?

Answer 3

Price history, all publicly available information and insider information, are accounted for in the current market price

Question 4

Are the world’s leading markets also strong form efficient?

Answer 4

Evidence shows the world’s leading markets are not SF efficient. Insiders can benefit from their knowledge about companies

Question 5

Why can you not make use of insider information to buy and sell shares?

Answer 5

It is illegal

Question 6

Who has an advantage?

Answer 6

Insiders (managers/directors), NOT professional investors or those with expert knowledge

Question 7

What do portfolios want to believe/make others believe?

Answer 7

There is market inefficiency