What does the "efficient market hypothesis" suggest?

The efficient market hypothesis (EMH) posits that stock prices fully reflect all available information at any given time. This means that it is impossible to consistently achieve higher returns than the overall market through stock selection or market timing because all known information is already incorporated into the stock prices. As a result, new information is quickly assimilated, making it difficult for investors to exploit any inefficiencies in the market.

The concept of EMH has significant implications for investment strategies. If the market is truly efficient, then active management and attempts to outperform the market through research and analysis are unlikely to yield better results than simply investing in a passive index fund. This theory supports the idea that any attempts to predict future price movements based on historical data or trends are futile, as the market already reflects all known data.

In contrast, options that propose equal access to information, the predictability of market trends, or the success of active management are not in alignment with the core tenets of the efficient market hypothesis. These assertions would suggest the existence of inefficiencies that EMH argues do not exist in a perfectly efficient market.