Strong form of efficient market hypothesis: Mutual funds in Poland

The efficient-market hypothesis (EMH), formulated by Fama, asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a a risk-adjusted basis, given the information available at the time the investment is made. There are three major versions of the hypothesis:

• weak,
• semi-strong, and
• strong.

The weak-form EMH claims that prices on traded assets (e.g. stocks, bonds or property) already reflect all past publicly available information. The semi-strong-form EMH claims both that prices reflect all publicly available information and that prices instantly change to reflect new public information. The strong-form EMH additionally claims that prices instantly reflect even hidden or "insider" information.

The strong-form EMH is usually verified in terms of efficiency evaluation of investment  portfolios – mutual funds. Common assumption is that mutual funds managers act on the basis of obtained information from the market and they try to achieve the best interests of investors (Fletcher, 1995 p. 144). The early efficiency measures are introduced by Treynor 1965, Sharpe 1966 and Jensen 1968, and they are still the most popular.

 The aim of the research is to evaluate the effectiveness of the selected open-end equity funds that has been operating at the Polish market. The data concerns daily observation and they are used to evaluate different efficiency measures. Preliminary investigation shows that portfolio returns are smaller than the market ones in the bull market and higher than the returns from the stock index during the bear market.