2.4.2. Semi-Strong-Form Tests

Semi-strong-form tests involve an event study, which is used to test the adjustment speed of asset prices in response to an event announcement released to the public. An event study averages the cumulative abnormal return (CAR) of assets of interest over time, from a specified number of pre-event time periods to a specified number of post-event periods. Fama et al. (1969) provided evidence on the reaction of share prices to stock split. The market seems to expect public information, and most price adjustments are made before the event is revealed to the market, with the rest quickly and accurately adjusted after the news is released. Fama et al. (1969) concluded that their results support the EMH. Apart from stock split, other event studies on earnings announcements (Ball and Brown 1968), announcements of discount rate changes (Waud 1970) and secondary o fferings of common stocks (Scholes 1972) generally provide supportive evidence for the semi-strong form of market e fficiency.
