Explanation
Strong-form efficiency is the correct answer because:
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Market Efficiency Forms:
- Weak-form efficiency: Security prices fully reflect all historical price and volume information
- Semi-strong-form efficiency: Security prices fully reflect all publicly available information
- Strong-form efficiency: Security prices fully reflect all information, including both public and private information
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Key Distinction:
- Strong-form efficiency is the most stringent form where even private or insider information is already incorporated into security prices
- This implies that no investor, including corporate insiders, can earn abnormal returns using any type of information
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Real-World Context:
- In practice, strong-form efficiency is considered unrealistic because it would mean insider trading is impossible
- Most markets are considered to be semi-strong-form efficient at best
Why other options are incorrect:
- Option A (Weak-form): Only reflects historical market data, not private information
- Option B (Semi-strong-form): Reflects all public information but not private information
Answer: C - Strong-form efficient
