The (now largely discredited) theory that all market participants receive and act on all of the relevant information as soon as it becomes available. If this were strictly true, no investment strategy would be better than a coin toss. Proponents of the efficient market theory believe that there is perfect information in the stock market. This means that whatever information is available about a stock to one investor is available to all investors (except, of course, insider information, but insider trading is illegal). Since everyone has the same information about a stock, the price of a stock should reflect the knowledge and expectations of all investors. The bottom line is that an investor should not be able to beat the market since there is no way for him/her to know something about a stock that isn't already reflected in the stock's price. Proponents of this theory do not try to pick stocks that are going to be winners; instead, they simply try to match the market's performance. However, there is ample evidence to dispute the basic claims of this theory, and most investors don't believe it.
Related information about Efficient Market Theory:
- Efficient-market hypothesis - Wikipedia, the free encyclopedia
In finance, the efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently ...
- Efficient Market Hypothesis (EMH) Definition | Investopedia
Making Sense Of Market Anomalies. Stocks sometimes thwart the efficient market theory by showing some very unusual patterns.
- What is Efficient Market Theory? definition and meaning
Definition of Efficient Market Theory: The (now largely discredited) theory that all market participants receive and act on all of the relevant information as soon as ...
- Efficient Market Theory
The efficient market hypothesis—like the random walk hypothesis it grew out of— is not so much a hypothesis as it is a model for how markets perform.
- AOL and the Case Against Efficient Market Theory - Businessweek
Apr 11, 2012 ... This time last week, I, like nine out of every 10 investors, believed AOL was a dead-end investment. How could it not be? This is no longer a 56k ...
- Jeremy J. Siegel: Efficient Market Theory and the Crisis - WSJ.com
Oct 27, 2009 ... Jeremy J. Siegel writes in The Wall Street Journal that the Efficient Market Hypothesis isn't to blame for our financial collapse. The fact that the ...
- Efficient Market Theory - Financial Dictionary - The Free Dictionary
A controversial model on how markets work. It states that the market efficiently deals with all information on a given security and reflects it in the price ...
- Efficient Capital Markets: The Concise Encyclopedia of Economics ...
The efficient markets theory (EMT) of financial economics states that the price of an asset reflects all relevant information that is available about the intrinsic value ...