LM3: Market efficiency foundations

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Last updated 10:14 AM on 4/8/26
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5 Terms

1
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Weak-form

efficiency means prices reflect past market data (challenges technical analysis)

2
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Semi-strong-form

efficiency means prices reflect past market data and all public information (challenges fundamental analysis)

3
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Strong-form

efficiency means prices reflect past market data, public information, and private information.  (rules out abnormal profits from private information) 

4
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Key anomalies

  • calendar effects

  • momentum/overeaction

  • size

  • value

  • earning suprise

  • IPO effects

5
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Key behavioral biases

  • loss aversion

  • herding

  • overconfidence

  • information cascades

  • representitiveness

  • mental accounting

  • conservatism

  • narrow framing