In this essay, I will critically analyze the validity of the strong form of the Efficient Market Hypothesis while evaluating the Efficient Market Hypothesis, to determine its credibility today. .Say no to plagiarism. Get a tailor-made essay on “Why violent video games should not be banned”?Get an original essayTo be able to critically analyze the strong form of the efficient market hypothesis, I will first define the hypothesis , its different forms and assess its credibility. One of the main proponents of the EMH and one of the main economists who contributed to its dissemination was Eugène Fama. Fama (1970) states that in an efficient market, prices fully reflect all available information. The efficient market hypothesis proposes that when new information emerges, it spreads quickly and is then factored into the prices of investment securities without delay. Investment securities are securities purchased to be held for investment purposes. As all investors now have access to the same information, stock price movements are no longer predictable and now react immediately to new information. This implies that no amount of analysis could give an investor an advantage over other investors because all known information is already factored into prices. Therefore, technical analysis, which relies on the idea that history repeats itself and that past stock prices can therefore be used to predict future prices, cannot be used to help investors select stocks undervalued. The EMH is linked to the idea of ​​a “random walk”. ". A random walk is a financial theory that claims that stock prices move completely randomly (a random walk on Wall Street) and are therefore unpredictable. The logic behind this theory is that if the flow of information is unlimited and stock prices reflect all information without delay, then tomorrow's stock prices will be based only on tomorrow's information, regardless of today's price changes today (a random walk on Wall Street). News itself is unpredictable and therefore results in random price changes. As a result, since investors now all have access to the same information, they will receive the same return on their individual investments. There are three main forms of EMH, each consecutively stronger in involvement, among which the weak form of EMH, the semi-strong form. EMH form and strong EMH form. The weak form is the least rigorous form and proposes that all historical data is already factored into the prices of investment securities (the balance). This therefore implies that technical analysis does not work. The semi-strong form of the EMH is a more rigorous form that suggests that new information is immediately reflected in security prices (the balance). The strong form of the EMH is the most rigorous form of the EMH. As mentioned earlier, in this essay I will delve deeper into the strong form EMH and discuss its validity. A form of strong efficiency is where stock prices are fully reflected by all available information, public, private and confidential (Nasdaq). This means that no group of investors should be able to consistently beat the market and therefore investors cannot gain a competitive advantage over each other. When analyzing strong form effectiveness, three different categories of investors are important: corporate insiders,security analysts and professional portfolio managers. Corporate insiders are either directors, a shareholder with more than 10% of the capital, or a senior executive. It is mandatory that once a person is ranked as a corporate insider, he or she adheres to various strict rules and regulations set by the Securities and Exchange Commission (SEC) (TIP Ranks). Insider trading is the purchase or sale of an investment security by an individual with access to non-public information about that security (Investopedia). The legality of the trade depends on when the trade takes place, if the information is not yet public at the time of the trade, then it is considered illegal insider trading. To prevent this, the SEC has put in place certain rules that all company insiders must follow. One of them being section 16a of the Securities and Exchange ACT 1934 which states that whenever an insider trades in shares of his own company, he must file a section 16(a) report with the SEC detailing the acquisition of the shares. These reports can then be used by other investors to assess the profitability of the transaction. This demonstrates exactly why corporate insiders are unable to make a profit, because the more people who have access to inside information about a transaction, the more its value depreciates and since all information is reflected in the price shares, the share price would have already declined before the investor had a chance to make a trade. After corporate insiders, security analysts have the second most information during transactions. Although they do not have access to inside information, brokerage firms spend a lot of time and money analyzing stocks so that security analysts can give reliable and trustworthy investment advice to their clients. . Womack (1996). Their advice on which stocks would be most profitable to buy and sell has a large impact on stock prices, demonstrating that there are indeed returns on the costs of searching for information. This is proven by Womack (1996) who found through testing that buy and sell recommendations provided by securities analysts had a significant effect on stock prices immediately and over a short period of time. It also found that larger brokerages are more likely to give more credible recommendations and, therefore, charge more. Reputable stock analysts have the greatest influence on prices because their advice is considered more reliable. A professional portfolio manager is an individual or group of individuals responsible for investing the assets of a mutual fund, exchange-traded fund, or exchange-traded fund, implementing its investment strategies. investment and supervision of daily portfolio operations (Investopedia). These are usually experienced traders, brokers or investors and usually have a direct impact on the fund's overall returns. However, according to Elton, Gruber, Das, and Hlavka (1993), test results revealed that a fund's expenses were negatively related to fund performance. Fund expenses include investment advisory fees, so if it has been determined through testing that fund expenses are negatively related to fund returns, this shows that investment advice is not particularly necessary. So this shows that apparently professional portfolio managers don't have much influence on stock prices after all. According to.