Semi-strong Form Market Efficiency

by Obaidullah Jan, ACA, CFA

Semi-strong form of market efficiency is when prices already reflect all publically available information and it is not possible to earn excess return by fundamental analysis.

Semi-strong form of market efficiency lies between the two other forms of market efficiency, namely the weak form of market efficiency and strong forms of efficient market efficiency.

When a market is semi-strong form efficient, neither technical analysis nor fundamental analysis can help predict future price movements. However, non-public information can be used to earn above average return.

Many markets exhibit characteristics of semi-strong form of market efficiency.


Alex held 100 shares of Cure Inc. which he had purchased on 1 January 2013 for $25 per share. Cure Inc. is a company engaged in research and development of new antibiotics against resistant microbes. Alex is not an active investor so he does not checks the stock performance daily. On 14 January 2012 (Sunday), he came across an article shared by his friend on Facebook. The article was published on 11 January 2012 (Friday). According to the article, Cure Inc. has failed in a project worth a net present value of $20 million. Total outstanding shares of Cure Inc. are 5 million. Alex sold off his holding for $2,050 (at $20.5 per share) in the opening hours of 15 January 2012 (monday). He was glad that he minimized his loss but towards the end of 15 January 2012, the company's stock price had even climbed to $21. He is wondering what happened.

The market seems to be semi-strong form efficient. The market had adjusted itself to the public information on Friday (11 January 2012) as soon as the market came to know about it. Alex should not have used this public information to project a decline on Monday. The drop in price is almost equal to the net present value per share no longer available ($20 million divided by 5 million).