What is the Efficient Market Hypothesis (EMH)?

The Efficient Market Hypothesis (EMH) is an economic theory proposed by Eugene Fama in the 1960s. It argues that financial markets fully reflect all available information, meaning it is nearly impossible to consistently outperform the market since asset prices always trade at their fair value.

Forms of EMH

• Weak Form: Prices reflect historical data, making technical analysis ineffective.

• Semi-Strong Form: Prices reflect all public information, limiting the usefulness of fundamental analysis.

• Strong Form: Prices reflect both public and private (insider) information, leaving no room for any advantage.

While widely studied, EMH remains controversial. Critics argue that emotional and behavioral factors often cause mispricing, challenging the idea of perfectly efficient markets.