Efficient Market Hypothesis

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Efficient Market Hypothesis

States that all relevant information is fully and immediately reflected in a security's market price, thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis exist: weak form (stock prices reflect all past information in prices), semistrong form (stock prices reflect all past and current publicly available information), and strong form (stock prices reflect all relevant information, including information not yet disclosed to the general public, such as insider information).

Efficient Market Theory

A controversial model on how markets work. It states that the market efficiently deals with all information on a given security and reflects it in the price immediately. The model holds that technical analysis, fundamental analysis, and any speculative investing based on them are useless. The model has three forms: weak efficiency, which holds that technical analysis is ineffective, semi-strong efficiency, which holds that fundamental analysis is ineffective, and strong efficiency, which states that even insider information is immediately reflected in the security prices. Investors and academics disagree on how well the model works.
References in periodicals archive ?
In his doctoral dissertation, Fama (1965) proposed the tenets of the EMH as well as the definition for efficient markets: "A market where there are large numbers of rational, profit-maximizers, actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants.
Allen said,"At EMH Prescient Investment Management the core of our philosophy is capital preservation and the management of downside risk.
The erythropoietic masses are usually asymptomatic, although the presence of EMH within the spinal canal may be associated with spinal cord compression and neurological deficit related to the level of involvement.
Technicians believe that commodity prices exhibit trends that persist across time, whereas the weak-form EMH states that price data are already reflected in the stock prices.
Nowadays, the concept of EMH in emerging market is becoming more important because of the globalization, free movement of investments across national boundaries and the huge capital inflows from developed economies.
The results of Descriptive Statistics, Jarque Bera, K-S test, ACF test and LB statistics show that Indian stock markets (Nifty and Sensex) are inefficient in weak form while run test and unit root test support EMH for the select periods.
Critics say EMH is not valid mainly because it does not account for the sometimes irrational decisions made by investors, such as what was seen at the height of the tech bubble in the late 1990s.
Ahmed believes the analyst's performance does not provide evidence against the EMH.
EMH is a well-recognized phenomenon, the pathogenesis of which is incompletely understood.
Sheldon, MD, CPE, is president and chief executive officer of EMH Regional Healthcare System in Elyria, Ohio.