Efficient market hypothesis - part 1
Taught by Ben Wilson · AI tutor support included
You'll learn the three levels of the efficient market hypothesis—weak form, semi-strong, and strong form—and understand how each explains what information is reflected in a company's share price. This concept underpins valuation techniques across the syllabus, and you'll see how to apply it in exam-style questions.
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In this lesson
- 0:00 Introduction to Efficient Market Hypothesis
- 1:19 Three Levels of Market Efficiency
- 2:01 Weak Form Efficiency Explained
- 2:11 Semi-Strong Form Efficiency Explained
- 2:50 Strong Form Efficiency Explained
- 3:49 Evidence Supporting Weak Form Efficiency
- 5:05 Semi-Strong Efficiency and Market Overreaction
- 6:57 Strong Form Efficiency and Insider Trading
About this lesson
By the end, you'll grasp why markets are rational to a point, but not perfectly so, and why this matters when valuing shares. The video breaks down each level with practical examples using Apple's share price. Weak form efficiency means the share price reflects past company performance. Semi-strong efficiency adds publicly released information about the company's future plans. Strong form efficiency would include private information known only to company directors—but evidence shows this doesn't happen, since insider trading is both illegal and profitable, proving private information isn't reflected in share prices. You'll explore the real-world evidence for each level and understand why semi-strong efficiency is closest to reality, though even that has gaps when new information is first released and the market takes time to digest it fully.
Duration: 8m
Transcript
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