Weak Form of Market Efficiency Test

D

The weak form of market efficiency is one of the three forms of the efficient market hypothesis (EMH), which states that all historical prices and trading volumes of a security are reflected in its current market price, and that it is impossible to consistently achieve returns above the average market return based on historical information alone.

To test the weak form of market efficiency, we need to examine whether or not past prices and trading volumes can be used to predict future prices. If the weak form of market efficiency is true, then past prices and trading volumes should not be able to provide any information about future prices that can be used to make profitable trades.

Out of the answer choices provided, none of them are directly related to testing the weak form of market efficiency.

• Stock splits: a stock split is a corporate action in which a company increases the number of shares outstanding by issuing more shares to current shareholders. Stock splits do not have any direct impact on the fundamental value of the company, and thus are not useful for testing market efficiency.
• Insider transactions: insider transactions refer to buying or selling of a company's shares by people who have access to non-public information about the company. While insider transactions may provide insight into the company's future prospects, they are not a direct test of market efficiency.
• Accounting changes: accounting changes may impact the reported financial results of a company, but do not necessarily reflect changes in the underlying fundamentals of the company. Therefore, they are not useful for testing market efficiency.

In conclusion, the correct answer to this question is D. None of these, as none of the provided answer choices are directly related to testing the weak form of market efficiency. A common method for testing the weak form of market efficiency is the "random walk" hypothesis, which states that stock prices follow a random walk pattern and that past price movements cannot be used to predict future movements. This can be tested by analyzing the statistical properties of past stock prices, such as autocorrelation and stationarity.