) The hypothesis of
market efficiency claims that any new information does not just enter the
market, but it does it very quickly – almost instantly this is reflected in the
price level. Thus, the equality of the market price of the share of its
intrinsic value is observed at any time. In such conditions it becomes
impossible to “outwit” the market, that is, buy paper cheaper or sell
more expensive than its actual (fair, internal) cost. There are 3 forms of EMH:

ü  Weak
form 

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ü  Semi-strong
form

ü  Strong
form

It is considered that
the market has a weak degree of efficiency, if the prices of instruments
related to it, reflect only the information contained in the dynamics of past
quotations. In such a market it is impossible to obtain excess profits, using
only data on changes in prices of securities in previous periods. It can be
concluded that practically any organized stock market (stock exchange) on which
the system of informing about price changes is established has a weak degree of
efficiency.

If current market
prices reflect all publicly available information, the market has a Semi-strong
form of efficiency. In this case, it becomes impossible to obtain super profits
from possession and such information. Studies show that in such markets, any
new public information is reflected in the price on the day of its publication,
that is, it immediately becomes known to all market participants, so the
possibility of monopoly ownership and the useful use of such information by
individual players is virtually eliminated.

A strong form of
efficiency assumes that all information is reflected in current market prices,
both publicly available and accessible only to persons who are directly related
to the activities of the company. If this hypothesis is correct, then super
profits can not be obtained even by specialized insiders. Insiders are large
shareholders, top managers, representatives of regulatory bodies, etc., who by
virtue of their position have information and influence that can be used for
personal gain. In practice, the hypothesis of a strong form of capital market
efficiency, as a rule, is not confirmed, and insider information allows you to
receive super-profits.

First, the analyst
collects information about the company and any factors that may affect its
operations. Then he analyzes the collected materials for the current time (TO)
and tries to evaluate the share price in the future (T1). We will denote this
estimate of the proposed share price as P (1). Based on the current share price
– P (0), – the analyst can calculate the expected return on investment in these
shares – r:   r = P (1) / P (0) -1

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