The Efficient Market Hypothesis (EMH), a cornerstone idea in finance, contends that stock prices in the financial markets swiftly and accurately reflect all available information. The fact that investors have no opportunity of obtaining abnormal profits from capital market transactions as compared to other investors, they cannot beat the market. The theory determines that the only opportunity?investors?have to gain higher returns on their investments is through purely speculative investment?that pose a substantial risk.
The hypothesis has three forms, weak, semi-strong and strong.?
- The?weak form?suggests that today’s stock prices reflect all the data of past prices and that no form often technical analysis can be effectively utilized to aid investors in making trading decisions.
- ?The semi-strong form assumes that financial assets’ prices reflect, at any moment, all the information existent in present market, including historical prices and other historical information.?
- The strong form of EMH assumes that prices incorporate all the available information on a market, which includes: historical financial information (weak form), all new public information (semi-strong form) and all private information regarding a financial asset.?