Market Efficiency

Weak Form Efficiency


The weak version of market efficiency assumes that past information does not affect current stock prices, therefore it is impossible to use the past to predict what is going to happen in the future.


Investors that subscribe to weak market efficiency, believe that looking at the stock chart is a waste of time and that it is impossible to identify patterns in past stock data to predict future patterns.


Weak market efficiency is often referred to as random walk theory, which as the name suggests, assumes that the stock market is completely random.


Investors that hold a random walk perspective typically believe that is not possible to outperform the overall stock market. Instead of owning individual stocks, they believe that index funds are more suitable.

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