Semi-strong form EMH:

Semi-strong form EMH:
· Security prices reflect all publicly-available information.
· stocks adjust quickly to absorb new information.
· Fundamental analysis cannot generate excess returns either

Tests:
Event test
Given the assumption that the market is reflective of all publicly available information, an event test analyzes the security both before and after an event. The idea behind the event test is that an investor will not be able to reap an above average return by trading on an event.

Regression/Time Series Tests
Remember that a time series forecasts returns based historical data. As a result, an investor should not be able to achieve an abnormal return using this method.

Abnormal return = Actual Returnl - Market Return;
Risk adjusted abnormal return = Actual Returnl -Market Return x beta

Test Result: mixed.
The semi-strong form EMH, at times, is both supported and not supported by the tests and analysis done. There has been some evidence that securities are not reflective of the semi-strong form EMH.

Supported by event studies: abnormal returns around stock splits (no LT or ST impact), IPOs (price adjustment occurs within 1 day of offering , exchange listing do not cause permanent change in LR value. and accounting changes).

Rejected by time series tests: term structure of interest rates and dividend yield can be used predict LR prices, earning surprise not be reflected as fast as semistrong EMH expected. Thus one can predict for individual price:

Calendar studies - January anomaly & weekend effect does work

Cross sectional tests -neglected, low PE, and high P/B firms (regardless of the size) have higher returns; small size firms have higher return