Efficient Market Hypothesis - EMH

Efficient Market Hypothesis - EMH

An investment theory that states that it is impossible to "beat the market" because existing share prices already incorporate and reflect all relevant information.

Notes:

The EMH is a highly controversial and often disputed theory. Supporters believe it is pointless to search for undervalued stocks or try to predict trends in the market through any technique from fundamental to technical analysis, since an individual could achieve superior results from randomly picking stocks from a hat.

On the other hand, academics point to a large body of evidence in support of EMH. This includes the fact that since the balance of investors value stocks differently, it is impossible to ascertain what a stock "should" be worth in an efficient market. Also, investors such as Warren Buffett have consistently beaten the market.

See also: Behavioral Finance, Fundamental Analysis, Price Taker, Random Walk Theory, Technical Analysis, Warren Buffett