Financial theorists have identified two different types of efficiency in financial markets. The first, informational efficiency, contributes to the existence and strength of the other, economic efficiency.

The degree of informational efficiency exhibited by a market refers to the types of information incorporated into the prices observed in the market and the speed with which prices adjust when new relevant information is released into the market. Markets are said to exhibit one of three levels of informational efficiency: weak-form efficiency, semistrong-form efficiency, or strong-form efficiency.

True or False: The degree of economic efficiency observed in a market is strongly influenced by the degree of informational efficiency that exists in the same market.

True

False

The informational efficiency of financial markets determines the ability of investors to beat the market and earn abnormal returns on their investments. If the markets are efficient, then they will react rapidly as new relevant information becomes available. Financial theorists have identified three levels of informational efficiency that reflect what information is incorporated into stock prices. Identify the following three levels of informational efficiency:

Description	Strong Form	Weak Form	Semistrong Form
Current market prices reflect all relevant information, whether it is known publicly or privately.
Current market prices reflect all information contained in past price movements.
Current market prices reflect all relevant publicly available information.