The weak form of the efficient market hypothesis implies that:

• A. Market prices are unaffected by new information.
• B. Current stock prices fully reflect all information contained in past price movements.
• C. All public and private information is immediately incorporated into stock prices.
• D. Investors can consistently earn abnormal returns by analyzing historical price data.

Answer: (B)

Verified step by step guidance

1. Understand the Efficient Market Hypothesis (EMH) and its forms: weak, semi-strong, and strong. Each form differs in the type of information reflected in stock prices.
2. Recall that the weak form of EMH states that current stock prices fully reflect all information contained in past price movements, meaning past prices cannot be used to predict future prices for abnormal gains.
3. Recognize that the weak form does not claim that market prices are unaffected by new information; rather, it focuses on the irrelevance of historical price data for predicting future prices.
4. Note that the semi-strong form states that all public information is reflected in prices, and the strong form states that all public and private information is reflected.
5. Conclude that the correct implication of the weak form is that investors cannot consistently earn abnormal returns by analyzing historical price data, as this information is already incorporated into current prices.