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Efficient markets theory is a field of economics which seeks to explain the workings of capital markets such as the stock market. Introduced by University of Chicago economist Eugene Fama, the efficient market hypothesis shows how the price of a stocks will reflect a balanced rational assessment of the true underlying value o the stock (i.e., rational expectations); the prices will have fully and accurately discounted (taken account of) all available information (news).

The theory assumes several things including perfect information, instantaneous receipt of news, a marketplace with many small participants (rather than one or more large ones with the power to influence prices). Since the theory assumes that news arises randomly in the future (otherwise the non-randomness would be analysed,forecast and incorporated within prices already), then the theory predicts that stock prices will approximate to a stochastic process pattern of price movement and that technical analysis (and statistical forecasting) are likely to be fruitless.

This efficient process of price determination can be contrasted with an inefficient market in which, according to the theory, the pre-conditions for efficient pricing ( perfect information, many small market participants) have not been met and prices may be determined by factors such as insider trading, institutional buying power, mis-information, panic and stock market bubbles and other collective cognitive or emotional behavioral biases.

A central part of this theory is the Efficient market hypothesis.

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Topics: Efficient Markets Theory, Efficient Market Hypothesis...

Efficient markets theoryEfficient markets theory is a field of economics which seeks to explain the workings of capital markets such as the stock market. Introduced by University of Chicago economist Eugene Fama, the efficient market hypothesis shows how the price of a stocks wi	Efficient market hypothesisIn finance, the efficient market hypothesis (EMH asserts that stock prices are determined by a discounting process such that they equal the discounted value (present value) of expected future cash flows. It further states that stock prices already reflect	Efficient learning methodEfficient learning method is a type of teaching developed to transfer knowledge, understanding and information to students as efficiently as possible, using information technology tools. It typically employs alternatives to traditional teaching methods su
Efficient market theoryEquivalent to efficient market hypothesis and efficient markets theory. Also labelled EMT or EMH This theory / hypothesis suggests that market prices react rather rationally and instantly to all known information, so that prices fit known economic fundame

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