Three Forms of EMH 1.Weak Form: Prices reflect all information contained in past prices No serial correlation of prices expected ·Consistent with EMH No special advantage to technical analysis No bull or bear market,except in retrospect 10
10 Three Forms of EMH Three Forms of EMH 1. Weak Form: Prices reflect all information contained in past prices ÄNo serial correlation of prices expected • Consistent with EMH ÄNo special advantage to technical analysis ÄNo bull or bear market, except in retrospect
1.Weak Form Market Efficiency Security prices reflect all information found in past prices and volume. If the weak form of market efficiency holds,then technical analysis is of no value. Often weak-form efficiency is represented as P=P1+Expected return random errort Since stock prices only respond to new information,which by definition arrives randomly, stock prices are said to follow a random walk. 11
11 1.Weak Form Market Efficiency 1.Weak Form Market Efficiency Security prices reflect all information found in past prices and volume. If the weak form of market efficiency holds, then technical analysis is of no value. Often weak-form efficiency is represented as Pt = Pt-1 + Expected return + random error t Since stock prices only respond to new information, which by definition arrives randomly, stock prices are said to follow a random walk