Market efficiency explains how much information is already reflected in security prices. Eugene Fama classified market efficiency into three forms: weak form, semi-strong form, and strong form.
In weak-form efficiency, prices reflect past market data. In semi-strong-form efficiency, prices reflect past data and all public information. In strong-form efficiency, prices reflect past data, public information, and private information.
Example:
Suppose a stock is trading at ₹500.
If the market is weak-form efficient, the price already reflects past price and volume data.
If the market is semi-strong efficient, the price also reflects public news such as earnings and dividends.
If the market is strong-form efficient, the price even reflects private information known by insiders.
So, the stronger the form of market efficiency, the more information is included in the stock price.
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