Efficient Markets Hypothesis

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Efficient Markets Hypothesis (also known by its acronym, EMH; hereinafter, EMH) is a hypothesis that states that (1) stocks are always in equilibrium and (2) it is impossible for an investor to consistently “beat the market.” EMH assumes that all important information regarding a stock is reflected in the price of that stock.


Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Efficient Markets Hypothesis (EMH). States (1) that stocks are always in equilibrium and (2) that it is impossible for an investor to consistently “beat the market.” The EMH assumes that all important information regarding a stock is reflected in the price of that stock.

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