Test Semi-Strong Efficiency

C

The semi-strong form of the Efficient Market Hypothesis (EMH) states that all publicly available information is already reflected in a stock's current price. In other words, it is impossible to consistently earn excess returns by using publicly available information. There are several tests of semi-strong form efficiency, which examine how quickly and accurately the market incorporates new public information into the stock price.

Now, to answer your question, the correct answer is (A) Stock splits. Stock splits do not test semi-strong form efficiency because they do not convey any new information about the company's financial performance or future prospects. When a company announces a stock split, it simply increases the number of shares outstanding and decreases the price per share proportionally. The total value of the company and the earnings per share remain the same. Therefore, the announcement of a stock split should not affect the stock price in a semi-strong form efficient market.

On the other hand, the other options are relevant tests of semi-strong form efficiency because they can convey new information to the market:

• (B) Accounting changes: If a company changes its accounting policies, it can affect how its financial performance is reported, which can lead to a revision of analysts' forecasts and affect the stock price.

• (C) Dividend announcements: If a company announces an increase or decrease in its dividend payout, it can signal the company's financial health and prospects, and affect investors' expectations and the stock price.

• (D) Insider transactions: If insiders, such as executives or large shareholders, buy or sell shares of the company, it can signal their confidence or lack of confidence in the company's future performance, and affect the stock price. However, it is worth noting that insider trading is regulated by securities laws and subject to disclosure requirements to prevent insider trading based on non-public information.

Overall, semi-strong form efficiency tests examine how quickly and accurately the market incorporates new public information into stock prices. Stock splits do not convey any new information, so they are not a relevant test of semi-strong form efficiency.