Strong form market efficiency states that the market incorporates all information in the stock price. Strong form efficiency implies that:
I. An investor can only earn risk-free rates of return
II. An investor can always rely on technical analysis
III. An insider or corporate officer can not outperform the market by trading on the inside information

Question

Quizplus · Accepted Answer

Strong form efficiency suggests that all information, including insider information, is already reflected in the stock price, meaning that no one can earn above-average returns by trading on such information. Therefore, option I is incorrect as market returns are not limited to risk-free rates. Option II is also incorrect since technical analysis cannot always be relied upon, despite the market's efficiency. However, option III is correct, as insiders and corporate officers cannot outperform the market by trading using inside information in a strong-form efficient market.

Strong Form Market Efficiency States That the Market Incorporates All