Efficient Market Hypothesis (EMH)

According to the efficient market hypothesis (EMH), all information about the value of assets is reflected in the financial markets at all times. The thesis, which was first put forth by economist Eugene Fama in the 1960s, contends that it is almost impossible for investors to outperform the market over the long term. All known knowledge will be traded on until it is no longer valuable, therefore assets will be valued at their fair market worth. Theorists distinguish between three levels of information availability when discussing efficient markets: weak, semi-strong, and strong. Weak suggests that all prior data is taken into account by current prices, making technical analysis unnecessary. It excludes other types of knowledge, though, and does not disprove the idea that strategies like lengthy research and fundamental analysis might be employed to gain an advantage. According to the semi-strong form, all publicly available information (news, corporate announcements, etc.) has already been accounted for in the price. As a result, supporters of this school think that even fundamental analysis is useless. Utilizing confidential information that is not yet public knowledge is the only method to outperform the market. In addition to previous performance and public information, any data made available to insiders will also be exploited, according to the strong form, which states that all public and private information is represented in an asset's price. According to this theory, no market participant could possibly obtain an advantage through the use of any kind of knowledge because the market would already have taken it into account. Although EMH is a well-known theory, it is not without its detractors. Although empirical evidence has not sufficiently supported or refuted the veracity of the idea, many detractors think that a variety of emotional reasons contribute to the undervaluation or overvaluation of stocks.