Section B - Case 2: Helios Co

Helios Co's directors are debating when to announce the acquisition of Aura Ltd to the stock market. The Finance Director states: "Our share price will only react on the day we publicly announce the acquisition, because the market already reflects all publicly available historical data, but it does not yet know about our secret negotiations."

Which form of the Efficient Market Hypothesis (EMH) is the Finance Director assuming the stock market follows?

The Efficient Market Hypothesis (EMH) has three forms: 1. Weak form: Prices reflect all past price movements. 2. Semi-strong form: Prices reflect all publicly available information. Prices react quickly and accurately to new public announcements. Insider information can still be used to make abnormal gains. 3. Strong form: Prices reflect all information, public and private. The director believes the market will react to the public announcement but hasn't reacted to the secret negotiations, which perfectly describes a semi-strong form efficient market.