The efficient market hypothesis is the theory that you cannot make excess returns because a lot of information is already reflected in the market.
“Efficient” here means that new information is reflected in the stock price as soon as it becomes available, and the current stock price reflects all information about the stock.
Therefore, the efficient market hypothesis can be divided into weak, semi-strong, and strong types depending on how much information is reflected in the current stock price.
👊 Weak-type efficient market hypothesis
Since the price reflects all past market information, it is assumed that you cannot generate excess returns even if you analyze the centrifugal past chart.
It has been proven to be true.
👊 Semi-strong efficient market hypothesis
It is assumed that the price reflects not only past market information, but also all publicly available information (financial statements), so that excess returns cannot be generated.
Although abnormal phenomena occur, it has been proven to be largely established.
January effect: In the new year, money flows into the stock market with expectations that the stock price will rise, and the stock price actually rises.
Dividend Yield Abnormality: Stocks with higher dividend rates outperform those with lower dividend yields
Delay in reflection of quarterly reports: The rate of reflection of stock prices in quarterly earnings reports is slower than expected by efficient marketers (originally should be the same)
Weekend effect: The closing price on Friday and the opening price on Monday are lowered, so buying near the starting price on Monday can yield excess returns.
Low PER effect: future returns higher than high PER stocks
Scale effect: Small companies have higher returns than large companies
Book value or market value ratio: A company with a high book value or market value ratio has a higher rate of return than a company with a low book value or market value.
Underestimated Business Effect: The smaller the number of stock analysts for the stock, the higher the performance.
👊 Strong efficient market hypothesis
It is assumed that all private information is fully reflected in the price so that you cannot generate excess returns.
In other words, it is difficult for insiders to achieve excess returns, but evidence has been found that this does not work well.