Weak-Form Market Efficiency

In a weak-form efficient market, current prices fully reflect all past market data, such as historical prices and trading volume.

This means investors cannot consistently earn abnormal returns by using past price trends or chart patterns. Technical analysis becomes less useful because past information is already included in the current price.

Example:
Suppose a stock increased from ₹100 to ₹110 to ₹120 in the last three days. A trader may think the price will continue rising because of the past trend.

But in a weak-form efficient market, this past price movement is already reflected in the current price of ₹120. The trader cannot consistently earn extra profit only by using this trend.

If the expected return is 8% and the trader earns 8%, there is no abnormal return. Abnormal return exists only if actual return is higher than expected return.

So, weak-form efficiency says past price data alone cannot be used to beat the market consistently.