CIMA F3 Syllabus D. Business valuation - Efficient Market Hypothesis (EMH) - Notes ^{14 / 15}

Weak Form

1. Share prices reflect past information only

2. Investors cannot generate abnormal returns by analysing past information

3. Share prices appear to follow a ‘random walk’ by responding to new information as it becomes available

Semi- Strong

• Share prices reflect past and current public information

• Investors cannot generate abnormal returns by analysing public information as share prices respond quickly and accurately to new information as it becomes publicly available

Strong

1. Share prices reflect public, past and private information

2. Even investors with access to insider information cannot generate abnormal returns in such a market

Stock markets are semi-strong

Managers will not be able to deceive the market by the timing or presentation of new information, such as annual reports or analysts’ briefings, since the market processes the information quickly and accurately to produce fair prices.

Managers should therefore simply concentrate on making financial decisions which increase the wealth of shareholders.