efficient market hypothesis
E96714
The efficient market hypothesis is a financial theory asserting that asset prices fully and immediately reflect all available information, making it impossible to consistently achieve returns above the market average through information-based trading.
Aliases (2)
Statements (49)
| Predicate | Object |
|---|---|
| instanceOf |
economic theory
→
financial theory → hypothesis in finance → |
| associatedWith |
Chicago School of Economics
NERFINISHED
→
|
| assumes |
competition among investors drives prices to equilibrium
→
information is freely and quickly available to market participants → many rational profit‑maximizing investors → |
| contrastsWith |
behavioral asset pricing
→
value investing philosophies that assume mispricing → |
| coreClaim |
asset prices fully reflect all available information
→
it is impossible to consistently achieve abnormal risk‑adjusted returns using available information → |
| criticizedBy |
behavioral finance
→
|
| criticizedFor |
assumption of fully rational investors
→
difficulty reconciling with market anomalies → inability to fully explain asset price bubbles → |
| field |
asset pricing
→
economics → financial economics → |
| formulatedIn |
1960s
→
|
| hasForm |
semi‑strong form efficiency
→
strong form efficiency → weak form efficiency → |
| hasInfluenceOn |
corporate finance decisions
→
regulation of financial disclosure → securities regulation debates → |
| implies |
active portfolio management cannot systematically beat passive strategies after costs
→
fundamental analysis cannot consistently outperform the market on a risk‑adjusted basis → no free lunch in financial markets → prices follow a martingale or random walk process under certain conditions → technical analysis cannot consistently outperform the market → |
| inAcademicLiterature |
Journal of Finance
→
Journal of Financial Economics → |
| influenced |
development of exchange‑traded funds
→
development of index mutual funds → |
| predicts |
abnormal returns are random and not persistent
→
no predictable excess returns from public information → |
| proposedBy |
Eugene F. Fama
→
|
| relatedConcept |
capital asset pricing model
→
modern portfolio theory → no‑arbitrage principle → random walk theory → |
| semiStrongFormDefinition |
all publicly available information is fully reflected in current prices
→
|
| strongFormDefinition |
all information, public and private, is fully reflected in current prices
→
|
| testedBy |
anomaly research
→
event studies → return predictability studies → |
| usedIn |
design of index funds
→
passive investment strategies → |
| weakFormDefinition |
all information contained in past prices is fully reflected in current prices
→
|
Referenced by (4)
| Subject (surface form when different) | Predicate |
|---|---|
|
Eugene Fama
("efficient-market hypothesis")
→
|
fieldOfWork |
|
Eugene Fama
("efficient-market hypothesis")
→
|
knownFor |
|
Chicago School economics
→
|
notableConcept |
|
Eugene Fama
("“Efficient Capital Markets: A Review of Theory and Empirical Work”")
→
|
notableWork |