Efficient Market Hypothesis

November 10th, 2010 by Kara in News

The Efficient Market Hypothesis (EMH) states that it is impossible to outperform the stock market on a consistent basis. EMH claims that a stock’s price reflects all information. Therefore, there are no undervalued or overvalued stocks because the price on the stock exchange is the fair value of that particular stock. According to the EMH, the only way to beat the market is to purchase riskier investments. This theory has many disbelievers who point to Warren Buffet as an example of someone who can routinely beat the market. Disbelievers also point to stock market crashes as evidence that stocks can indeed outgrow their true value.

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