Evidence on the relative efficiencies of domestic-owned and foreign-owned banks is less clear cut. Discuss this statement with reference to empirical evidence.

Ans)

The price of a security adjust with newly arriving information and it is called efficient capital market. In other words, we can say that a market is said to efficient if current prices of securities reflects all relevant information about that security. The investors use this available information to analyse the market or economy. Eugene Fama divided the efficient market hypothesis into 3 forms:-

1) Weak- form efficient

2) Semi-strong efficient

3) Strong form efficient

Weak-form efficient

Weak form efficient market hypothesis reflect all known information with respect to past price, trends and trading volumes. Weak form of efficient market hypothesis states that it is impossible to predict the stock price by analyzing the prices from past. No excess return can be made from the historical data or historical share price. This theory do not hold techinical analysis. The test that commonly used to verify the weak form efficiency are serial correlation test , run test and filter rule test.

Semi-Strong efficient

Semi-strong form of efficient market hypothesis states that security prices reflect all publicly available information. The semi-strong hypothesis encompasses the weak form hypothesis because all information in weak form hypothesis is public. The publicly available information include past stock price, rate of return, economic reports,dividend announcements, stock splits etc. It is impossible for an investor to make excess return from the publicly available data.

Strong-form efficient

Strong-form efficient states that security prices reflect all public and private information.This means that even insiders cannot make abnormal profit by using inside information.