information. The strong form of efficiency is when prices reflect not just public information but all the information such as that which can be acquired by painstaking fundamental analysis of the company and the economy New information cannot by definition be predicted ahead of time since otherwise it would not be new information. Therefore, price changes cannot be predicted ahead of time Series of price changes must be random. To put it another way, if stock prices already reflect all that is predictable, then stock price changes must reflect only the unpredictable--they must e random What sort of path of prices do you get if price changes are random and occur only when there is new information? Prices follow a random walk. In the 1970s there was an immense amount of empirical work done by Fama and others to determine whether the evidence supports market efficiency or a technical view. The interpretation of the evidence amassed was that it provided substantial support for weak-form market efficiency. Semi- strong efficiency also had substantial support. The evidence for strong-form efficiency was more in dispute To summarize, we have said that theoretically prices should reflect available information since otherwise people would be able to make arbitrage trades and profit from hem. Another way of thinking about efficient markets is that the purchase or sale of a ecurity at the prevailing market price is a zero NPv transaction. Most finance academics would agree that empirically there appears to be strong support for this proposition The efficient market hypothesis has a number of implications that go against what many practitioners commonly suppose about financial markets. We shall now take a brief look at some of the most important of these5 information. The strong form of efficiency is when prices reflect not just public information but all the information such as that which can be acquired by painstaking fundamental analysis of the company and the economy. New information cannot by definition be predicted ahead of time since otherwise it would not be new information. Therefore, price changes cannot be predicted ahead of time. Series of price changes must be random. To put it another way, if stock prices already reflect all that is predictable, then stock price changes must reflect only the unpredictable--they must be random. What sort of path of prices do you get if price changes are random and occur only when there is new information? Prices follow a random walk. In the 1970’s there was an immense amount of empirical work done by Fama and others to determine whether the evidence supports market efficiency or a technical view. The interpretation of the evidence amassed was that it provided substantial support for weak-form market efficiency. Semi￾strong efficiency also had substantial support. The evidence for strong-form efficiency was more in dispute. To summarize, we have said that theoretically prices should reflect available information since otherwise people would be able to make arbitrage trades and profit from them. Another way of thinking about efficient markets is that the purchase or sale of a security at the prevailing market price is a zero NPV transaction. Most finance academics would agree that empirically there appears to be strong support for this proposition. The efficient market hypothesis has a number of implications that go against what many practitioners commonly suppose about financial markets. We shall now take a brief look at some of the most important of these