The efficient markets hypothesis identifies three forms of market efficiency.

You observed that high-level managers make superior returns on investments in their companys stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency? (5 marks)

If the weak form of the efficient market hypothesis is valid, must the strong form also hold? Conversely, does strong form efficiency imply weak form efficiency?

(5 marks)

Stock XYZ, which traded for several months at a price of K72, and then declines to K65. if the stock eventually begins to increase in price, K72 is considered a resistance level because investors who bought originally at K72 will be eager to sell their shares as soon as they can break even on their investment. If everyone in the market believes in resistance levels, why do these beliefs not become self-fulfilling prophecies? (5 marks)

What would happen to market efficiency if all investors attempted to follow a passive strategy? (5 marks)

LMV Trust, outperformed the S& P 500 in each of the 15 years ending in 2005. Is this performance sufficient to dissuade you from a belief in efficient markets? If not, would any performance record be sufficient to dissuade you? (5 marks)

Explain the three forms of market efficiency propagated by the Efficient Markets Hypothesis and discuss the impact on investment strategy.