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What Is Efficient Market Hypothesis?

Answer»

Efficient market is one where the market price of the security is an unbiased estimate of its intrinsic value. The efficient market hypothesis is based on following ASSUMPTIONS:

  • Market is perfect and free without any trade RESTRICTIONS.
  • Market absorbs all the INFORMATION quickly and efficiently.
  • Information is free and costless and is freely available to all at the same time.
  • Information is fair and correct.
  • Market players can analyze the information quickly and it is absorbed in the market through buy and SELL SIGNALS.

Efficient market is one where the market price of the security is an unbiased estimate of its intrinsic value. The efficient market hypothesis is based on following assumptions:


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