Efficient-market Hypothesis (EMH)

The Efficient-market Hypothesis (EMH), an economic theory proposed by Eugene Fama in 1970, asserts that in a highly competitive and informationally transparent market, all available information is instantly and fully reflected in asset prices. This implies that asset prices already incorporate all public and private information, making it impossible for investors to consistently achieve returns above the market average by analyzing such information. EMH categorizes market efficiency into three forms—weak, semi-strong, and strong—corresponding to whether prices reflect historical information, all publicly available information, or all information including insider knowledge. The hypothesis suggests that price changes are random and unpredictable, rendering any attempt to "beat the market" through technical or fundamental analysis ultimately futile.

1. Market prices instantly reflect all available information, including historical data, public disclosures, and even insider information.
2. Investors cannot consistently earn above-average returns through information analysis.
3. Market efficiency exists in three forms—weak, semi-strong, and strong—each reflecting different levels of information incorporation.
4. Asset price movements are random and unpredictable, exhibiting a "random walk" pattern.
5. Both technical and fundamental analysis are largely ineffective in efficient markets, as all relevant information is already priced in.