Validity of EMH in semi-strong form: An analytical study

Abstract

The semi-strong form of Efficient Market Hypothesis asserts that security prices adjust quickly and rapidly to all publically available information. In an efficient market, there is no chance of statistically significant abnormal returns to any investor as all information is immediately incorporated into the stock prices. This information can be any announcement by a firm or it can be a macroeconomic announcement. Under firm level announcements, the announcement of bonus issue plays a significant role on the investors’ behaviour. Bonus shares are issued by a company when it intends to pay dividend by issuing shares. Bonus shares are declared when company has sufficient profit to declare dividend but either does not possess cash to pay it or does not want to part with it in order to implement some capital expenditure plans. Thus, bonus shares result in the capitalization of profit of the company.