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Corporate Financing Decisions and Efficient Capital Markets - page 6 / 28

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“Forms” of Market Efficiency

Semi-Strong Form Efficiency

A market is said to be semi-strong form efficient if current market prices fully incorporate all publicly available information (e.g., information in the WSJ).

Since past prices are publicly available information, if a market is semi-strong form efficient, it is necessarily weak form efficient.

In a market that is semi-strong form efficient investors cannot trade based on publicly available information and expect profits in excess of an equilibrium expected return (as specified by, for example, the SML).

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