Efficient Market Hypothesis (EMH)
The efficient market hypothesis states that asset prices fully reflect all available information, making it very difficult to consistently beat the market on a risk-adjusted basis.
Developed largely by economist Eugene Fama in the 1960s and 1970s, the EMH comes in three forms. The weak form says prices reflect all past price data, so technical analysis should not work consistently. The semi-strong form adds all public information, such as earnings reports and news. The strong form includes even private information.
If markets are efficient, new information is priced in almost immediately, and beating the market after costs would mostly be a matter of luck or of taking on extra risk. This idea underpins passive investing and index funds.
Critics, especially behavioral economists, point to bubbles, crashes, momentum and other anomalies as evidence that investors are not always rational and prices can deviate from fundamental value. Many experts see markets as highly but not perfectly efficient.
Example: when a company reports surprisingly strong earnings after the close, its stock often jumps in after-hours trading within seconds, leaving little time for slower investors to profit from the news.