Page 153 - A Canuck's Guide to Financial Literacy 2020

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Technical analysis often fails because investor tend to eliminate any profit opportunity
associated with stock price patterns.

Example of Weak Form Efficiency

Mike started working at McDonald’s. He has been studying more about investments and
stocks but has no prior experience. He notices that McDonald’s shares rise on Monday and
drop on Friday. One Friday, he purchased 50 shares of McDonald’s stock for $20 per share
hoping to sell them next week on a Monday. When the market opened on Monday,
McDonald’s shares declined 12%.

In this situation, Mike was trying to analyze past price patterns data in order to earn excess
return. However, this was a weak form market efficiency.

Semi-Strong Efficiency

Semi strong form efficient states that the current value of the security is based on all
publicly available information. This includes financial reports, accounting statements,
historical prices, volume information, etc. Semi-strong market efficiency states that
fundamental analysis cannot help predict future price movements and only non-public
information will allow investors to generate excess return. Semi-strong efficiency
encompasses weak form efficiency.