From the course: Cert Prep: CFA Exam Level 1
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Market efficiency on the CFA
From the course: Cert Prep: CFA Exam Level 1
Market efficiency on the CFA
- [Presenter] Can you beat the market? That question lies at the heart of the efficient market hypothesis or EMH, a theory you'll need to understand for the CFA exam and for real-world investing. In this video, we'll explain what the EMH is, the three forms of market efficiency, and what each form implies for investors and analysts. So what is market efficiency? Well, a market is efficient if prices fully reflect all available information immediately and accurately. That does not mean prices are always right. It means you can't consistently earn abnormal returns using that information. That's the foundation of the efficient market hypothesis. Now, this sounds innocuous at first, but it has enormous implications for the financial industry as a whole. So let's start by breaking down the three forms of market efficiency. EMH has three forms, each based on how much information is reflected in prices. First is weak form…
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