The efficient market hypothesis suggests that asset prices reflect all available information from "summary" of International Financial Management, Abridged Edition by Jeff Madura
The efficient market hypothesis asserts that asset prices fully incorporate all information that is available to the public. This implies that it is impossible for investors to consistently achieve above-average returns by analyzing publicly available information. If this hypothesis holds true, it suggests that stock prices adjust rapidly to any new information that becomes available, making it difficult for investors to exploit any information asymmetries for profit. The efficient market hypothesis comes in three forms: weak, semi-strong, and strong. In the weak form, asset prices reflect all past trading information, such as historical prices and trading volumes. This implies that technical analysis, which involves studying past price movements to predict future price movements, is unlikely to yield above-average returns. In the semi-strong form, asset prices incorporate all publicly available information, including not only past trading data but also information on financial statements, economic indicators, and news reports. Lastly, the strong form of the efficient market hypothesis posits that asset prices reflect all information, including both public and private information. This means that even insiders with privileged inform...
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