Strong Form Efficiency

Posted in Finance, Accounting and Economics Terms, Total Reads: 323
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Definition: Strong Form Efficiency

Market efficiency is the degree to which all the relevant information is reflected by the stock prices. The strong form of efficiency states that even insider trading can’t provide advantage to the investor because all the information in a market is reflected in the stock prices.


This indirectly implies that there can’t be a situation where the profits earned are more than the normal returns possible regardless of the information an investor has access to.


It conveys that no matter what you do, it is impossible to outperform the market because it is highly unpredictable, especially in the short run. Thus, all the specialised analysts, professional advisors, mutual fund managers all turn out to be useless if the market is highly efficient. Selecting an analyst will yield as good a result as randomly picking up some stock in the market.

 

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