5F.13
13. a What is semi-strong form market efficiency? [4]
Semi-strong form market efficiency is a level of market efficiency that requires that all publicly-available information be already incorporated in stock prices. Thus, in a semi-strong form efficient market, you can't read about something in the paper or hear about it on TV and then go make a trade that you know will be profitable--it's already too late, because the market quickly and efficiently impounds all public information into prices.
b. What does it imply about how easy it is to pick winners (stocks that will increase in value)? [3]
It implies that it is really hard to consistently pick winners. Since you can't be assured of picking winners using publicly available information, you would have to be consistently lucky. The only way to consistently pick winners is to use information that is not already incorporated into stock prices (inside, or private, information).
c. Is the US stock market semi-strong form efficient? What is our evidence? [3]
Yes, the US stock market is semi-strong form efficient. We use a technique called the "event study" and examine price reactions to public announcements of value-relevant information. The reactions show that the previously private information was not already impounded into the prices (the market is not strong-form efficient), but that as soon as the information becomes public, the prices move to the new correct level (on average). This movement takes place quickly, within 15 minutes, and profitable trading strategies do not exist past 15 minutes.