Efficient-market hypothesis
Economic theory that asset prices fully reflect all available information
Efficient-market hypothesis
The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information. Because the EMH is formulated in terms of risk adjustment, it only makes testable predictions when coupled with a particular model of risk. As a result, research in financial economics since at least the 1990s has focused on market anomalies, that is, deviations from specific models of risk. The idea that financial market returns are difficult to predict goes back to Louis Bachelier (1900), Benoit Mandelbrot (1963), and Paul Samuelson (1965), but is closely associated with Eugene Fama of the Chicago school of economics, in part due to his influential 1970 review of the theoretical and empirical research. The EMH provides the basic logic for modern risk-based theories of asset prices, and...
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