CFA Level 1 - Securities Markets
1.Earnings Reports
It has been shown that an investor can profit from investing immediately when a company reports because it takes time for the market to absorb the new information. This goes against the EMH.
2.January Anomaly
The January effect goes against the EMH. Essentially the January effect indicates that as a result of tax-related moves, investors have been shown to profit by buying stocks in December as they are being sold for losses and then selling them again in January.
3.Price-Earnings Ratio
Investing using the P/E ratio valuation metric has been an anomaly against the EMH. It has been shown that investors can profit by investing in companies with a low P/E ratio.
4.Price-Earnings/Growth (PEG) Ratio
Investing using the PEG valuation metric has been anomaly against the EMH. It has been shown similar to the P/E ratio that investors profit by investing in companies with low PEG ratios.
5.Size Effect
Going against EMH, it has been shown that smaller companies, on a risk-adjusted basis, have greater returns their larger peers.
6.Neglected Firms
Neglected firms are firms that Wall Street analysts deem too small to cover. As a result, these firms tend to generate larger levels of return, negating the EMH.
Overall Conclusions About Each Form of the EMH
The weak-form EMH is supported by the tests and analysis done. Essentially, the weak-form holds that abnormal returns are not achievable with the use of past-historical data as a means to generate returns.
The semi-strong form EMH, at times, is both supported and not supported by the tests and analysis done. There has been some evidence that securities are not reflective of the semi-strong form EMH.
It appears from the tests and analysis performed, that the strong-form EMH does hold. While insiders and specialists do have access to private information, SEC regulations forbid this information to be used.
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