Practice Question

Technical analysis is based on the idea that historical price and volume data can be used to predict future price movements. This assumption implies that past market information is not fully incorporated into current prices—hence, it assumes a violation of weak form efficiency.

Under weak form market efficiency, all past prices and data are already reflected in stock prices, so technical analysis should not yield consistent excess returns. Since technical analysis attempts to generate excess returns using historical data, it implies weak form inefficiency.