The Efficient Market Hypothesis (EMH), also referred to as the Efficient Market Theory, is a concept in finance that posits that stock prices accurately incorporate and reflect all available information in the market. According to this hypothesis, it is impossible to consistently generate excess returns, known as alpha, by trading on public information, as all known information is already factored into stock prices. EMH is divided into three forms: weak, semi-strong, and strong, each indicating the extent to which different types of information are incorporated into stock prices. It has significant implications for investment strategies, suggesting that market prices are generally efficient and difficult to outperform through stock picking or market timing.
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