Abstract
An Efficient Markets Hypothesis is an investment theory saying that all relevant information is always reflected in a security's market place by the security price and its trends. In other world, it states that it is impossible to beat the market because stock market efficiency causes stock prices to reflect all relevant information in all cases. Attempts to outperform the market are therefore more based on chance than on analytical skills.
The Efficient Market Hypothesis theory exists in three various degrees:
- Weak form: current stock prices reflect all past available security market information. Past prices and volume data have therefore no relationship with the future trends of security prices. It is impossible to achieve excess returns by using technical analysis.
- Semi-strong form: stock prices reflect all past and current information available to the public. They adjust rapidly to the release of all new public information.
- Strong form: stock prices reflect all relevant information, including information not yet publicly disclosed.
