The semistrong-form of the EMH states that __________ must be reflected in the current stock price.[Fill in the blank]

Question

BlackTom AI · Accepted Answer

Semistrong-form EMH asserts that all publicly available information is reflected in current stock prices.

1. Relevant knowledge points and concepts
- Efficient Market Hypothesis (EMH) has three common forms: weak, semistrong, and strong.
- Weak form: prices reflect all historical price and volume data (technical analysis is ineffective).
- Semistrong form: prices reflect all publicly available information (financial statements, news releases, analyst reports, macroeconomic data).
- Strong form: prices reflect all information, public and private (including insider information).

2. Step-by-step reasoning
- Identify what each option claims and map it to EMH definitions.
  Step 1: Option a states “all security price and volume data” — that corresponds to the weak form, not semistrong.
  Step 2: Option b states “all publicly available information” — this matches the textbook definition of the semistrong form.
  Step 3: Option c states “all information, including inside information” — that is the strong-form EMH.
  Step 4: Option d “all costless information” is vague and not a standard EMH formulation.

3. Calculations / intermediate steps
- No numerical calculations are needed; logical classification of definitions is sufficient.

4. Why the correct answer is correct
- The semistrong-form EMH explicitly claims that any information publicly released (earnings announcements, news, economic indicators, analyst opinions) is quickly and accurately incorporated into stock prices. Therefore, publicly available information cannot be used consistently to earn abnormal returns after it is released.

5. Why the other options are incorrect
- a. Refers only to historical price/volume data (weak form), so it’s incomplete for semistrong.
- c. Includes inside information; that describes the strong form, which is a stricter claim than semistrong.
- d. “Costless information” is nonstandard and ambiguous; EMH classes are defined by public vs. private information, not cost.

6. Conclusion
- The correct choice is “all publicly available information,” which matches the provided answer.

The semistrong-form of the EMH states that __________ must be reflected in the current stock price.[Fill in the blank]Single choice

Similar Questions

Which of the following contradicts the proposition that the stock market is weakly efficient?[Fill in the blank]

Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect __________.[Fill in the blank]

According to the Efficient Market Hypothesis (EMH), which of the following scenarios is most consistent with a weak-form efficient market?[Fill in the blank]

According to the Efficient Market Hypothesis (EMH), which of the following scenarios is most consistent with a weak-form efficient market?[Fill in the blank]

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