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Business valuations and market efficiency

7.5 Strong form efficiency

In a strongly efficient market share prices incorporate all information, whether public
or private, including information which is as yet unpublished.

Evidence

Insiders (directors for example) have access to unpublished information. If the
market was strong form:

 share prices would not move with breaking news as they would have already
reacted before the news became public

 there would be no need to ban ‘insider dealing’ as insiders would not be able to
beat the market

Conclusion for the stock market

 It is not strong form efficient, therefore its maximum level of efficiency is semi-
strong

 insider dealing is banned.

 the stock exchange encourages the release of new information quickly to
prevent insider dealing opportunities.

 insiders are forbidden from dealing in their shares at crucial times

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