Efficient market hypothesis: A unique market perspective
You must have heard stock market pundits often emphasizing on the importance of research and finding the value in a stock. There will be people out there vouching for their expertise with fundamental or technical analysis. However, there is a 0theory in the market that rubbishes all these claims. It’s called the efficient market hypothesis (EMH). EMH as the name suggests is a hypothetical theory. It essentially says that all known information is already factored into the stock price. Hence, no amount of analysis can give one investor an edge over the other. As per the EMH theory, stocks always trade at their fair value on exchanges. Hence, it is impossible for investors to purchase undervalued stocks. Or, sell stocks for inflated prices. It raises a few direct questions on popular analysis techniques. It asserts that with all new information priced in, neither technical nor fundamental analysis can generate excess returns. Therefore, it should be impossible to outperform the overall m...