A financial theory stating that asset prices perfectly reflect all available information.
A direct implication is that it is impossible to “beat the market” consistently since market prices react to new information.
Takes on three forms:
- Weak form asserts that an efficient market reflects all historical publicly available information about the stock, including past returns.
- Semi-strong form purports that an efficient market reflects historical as well as current publicly available information.
- Strong form holds that an efficient market reflects all current and historical publicly available information as well as non-public information.
Critics of the EMH argue that differing valuation methods among investors challenge the notion of a universally efficient market.