SIDC Module 12 Portfolio management and performance evaluation question: forms of market efficiency

SIDC Module 12Portfolio management and performance evaluation

A study finds that buying Bursa Malaysia shares after three consecutive daily price rises earns abnormal returns after transaction costs. Which forms of market efficiency does this evidence contradict?

A Semi-strong and strong forms, but not the weak form
B Weak form, but not the semi-strong or strong forms
C Weak form, and so the semi-strong and strong forms
D Strong form, but not the weak or semi-strong forms

Show the answer and explanation

Answer: C. Weak form, and so the semi-strong and strong forms

The rule uses only past prices, so profitable trading on it contradicts weak-form efficiency, under which prices already reflect all past trading data. The forms are nested: the semi-strong form covers all public information, which includes past prices, and the strong form covers all information, public and private. Evidence against the weak form is therefore evidence against all three. Limiting it to the weak form forgets the nesting, and assigning it to semi-strong or strong forms alone misreads the information used. Source: SIDC M12 Study Outline Topic 7.1 Market Efficiency; Bodie, Kane and Marcus, Investments, chapter 'The Efficient Market Hypothesis'; Fama (1970), 'Efficient Capital Markets: A Review of Theory and Empirical Work', Journal of Finance (as at October 2026).

Common mistake

Treating the three forms as separate boxes. Each stronger form contains the weaker ones.

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