4. Market efficiency (S12.2) Supply the missing words: “There are three forms of the efficientmarket hypothesis. Tests of randomness in stock returns provide evidence for the form of the hypothesis. Tests of stock price reaction to well-publicized news provide evidence for the form, and tests of the performance of insiders provide evidence for the form. Market efficiency results from competition between investors. Many investors search for new information about the company’s business that would help them to value the stock more accurately. Such research helps to ensure that prices reflect all publicly available information;

in other words, it helps to keep the market efficient in the form. Other investors study past stock prices for recurrent patterns that would allow them to make superior profits. Such research helps to ensure that prices reflect all the information contained in past stock prices; in other words, it helps to keep the market efficient in the form.”