A maintained hypothesis in research that uses correlation with stock returns as a criterion for evaluating accounting methods is that capital markets are efficient. However, in recent years, market efficiency has been subjected to significant empirical assault. There is mounting evidence of capital market anomalies, which suggests that capital markets might be inefficient (Kothari, Capital markets research in accounting, Journal of Accounting and Economics, 2001, p.120).

Required:

1. Explain the efficient market hypothesis and the three forms of mark efficiency.

(20 marks)

Critically discuss the above statement by referring to relevant articles