Updated Dec 31, 2022 The Efficient Market Hypothesis (EMH) is an investment theory that states that it is impossible to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. That means stock prices always reflect all available information, and it is impossible to consistently outperform the market by using any information that is already available. Note that different versions of the EMH exist, depending on the types of information included and their effects on market efficiency. For more information, check out our post on the three versions of the Efficient Market Hypothesis. To illustrate this, let’s look at a hypothetical investor called John. John is an experienced trader who has been trading stocks for many years. He has access to the same information as everyone else, such as company financials, analyst reports, and news articles. He also has a good understanding of the stock market and is able to make informed decisions. However, despite all his knowledge and experience, John can still not outperform the market consistently. This is because the stock prices already reflect all the available information (i.e., everyone else knows it too). Thus, even though John may be able to make a few successful trades, he will not be able to beat the market in the long run consistently. The Efficient Market Hypothesis is an important concept for investors to understand. It helps them to understand why it is so difficult to outperform the market consistently. It also explains why it is essential to diversify investments and why it is vital to have a long-term investment strategy. Finally, it also serves as a reminder that no one has the edge over the market, and that it is impossible to predict the future.Definition of Efficient Market Hypothesis
Example
Why Efficient Market Hypothesis Matters
Economics