The strong form proposes that the stock prices comprise all the information accessible about the stock comprising the public as well as private information. Therefore if a market is strong form efficient, then even the stockholders with insider information cannot take benefit to make unusual profits. The tests for this form focus among those shareholder groups who have surplus information. First one is the insiders such as senior executives who have access insight into company’s future. SEC regulations prohibit insiders to use this information to attain anomalous returns. Second are the exchange specialists that can achieve higher profits with particular information about the order. Third are the equity analysts who can guide an investor by giving expert opinion to achieve profits higher than normal. Last are the institutional money managers who typically works for mutual funds and institutional accounts and it has been established that they do not perform steadily according to the overall market standard
To make the market efficient, investors must believe that the market is ineffective because prices cannot perhaps express all information. This is because a share price depends upon future cash flows, and information about the future is vague. For example, when future cash flows are unidentified, an unpredictably bad trading can cause a share price to drop suddenly and it could indicate that long-term prospects are worse. Due to this prices can be more unstable than underlying dividends, without irrational behaviour of customer. Unstable stock prices can also be high in a recession because economic downturns increase the small possibility of a disaster which will affect future dividends and the share prices also will fluctuate aggressively when investors came to know about this.
In order to keep a market efficient investment strategies envisioned to take advantage of inefficiencies. Accessibility and cost information must be commonly available to investors in a timely manner. Investors should take advantage of inefficiency by utilizing funds because they may disappear according to the hypothesis of efficient market.