Tests for the Semi Strong Market
When the current security prices reflect all the public information including market and non-market information. This implies that decisions made on new information after it is made public with not result into any above the average profit. In semi strong form of efficient market, no return is earned above average.
The semi strong form of EMH says that you cannot use any published information to predict future prices. Semi-strong EMH is a shot aimed at fundamental analysis. If all published information is already reflected in a stock’s price, then there’s nothing to be gained from looking at financial statements or from paying somebody (i.e., a fund manager) to do that for you.
Two tests are applied for the semi strong market.
- Time series Test
- Event Test
1. Time Series Test
“A time series is a series of data points indexed (or listed or graphed) in time order. Most commonly, a time series is a sequence taken at successive equally spaced points in time. Thus, it is a sequence of discrete-time data. Examples of time series are heights of ocean tides, counts of sunspots, and the daily closing value of the Dow Jones Industrial Average”
Time series are very regularly designed via line charts. Time series are used in statistics, signal processing, pattern recognition, econometrics, mathematical finance, weather forecasting, earthquake prediction, electroencephalography, control engineering, astronomy, communications engineering, and largely in any domain of applied science and engineering which involves temporal measurements.
Time series examination includes methods for analyzing time series data acceptable to abstract expressive statistics and other features of the data. Time series predicting is the use of a model to forecast future values based on earlier observed values. While regression analysis is frequently used in such a way as to test theories that the present values of one or more independent time series affect the current value of another time series, this type of analysis of time series is not called "time series analysis", which emphases on associating values of a single time series or multiple dependent time series at different points in time.
2. Event Test
“All event test is a test under U.S. federal income tax law. According to the test all events fixing an accrual-method, taxpayer's right to receive income, or incur expense must occur before the taxpayer can report an item of income or expense”.
Related Topic: 3 Forms of Efficient Market Hypothesis
October 07, 2019