An analyst believes that she can use information taken from public sources to find mis-priced securities. She collects a sample of firms in which senior executives engaged in accumulating shares during the previous six month period. She performs some advanced statistical tests on the data of the firms and uncovers a relationship between stock returns and firm leverage. She then ranks the firms according to their debt-equity ratios and recommends the three most leveraged firms for all her clients. She believes that this relationship will continue to hold in the future. Describe the degree of market efficiency in which the analyst must believe.

Suppose her recommendations always generate returns consistent with the expected return predicted by the CAPM. Describe the degree of market efficiency that must hold.