The Efficient Market Hypothesis

`A market is efficient with respect to a particular set of information if it is impossible to make abnormal profits by using this set of information to formulate buying and selling decisions.’
In this essay I will be critically assesses the efficient market hypothesis (EMH) by examining empirical evidence that tests its validity. The main focus is on whether or not a set of information can be used to make abnormal profits to formulate buying and selling decisions predict. Information is given a broad definition in this context and includes all publicly available information. Some of the predictions and truths of the efficient market hypothesis are also examined in the process. The design of tests used in the evidence contributes significantly to their results. Consequently, mention is made of the procedures of tests prior to results being examined. Definition The efficient market hypothesis (EMH) refers to a capital market in which security prices fully reflect all available information. This implies that markets process information rationally. Relevant information is not ignored and systematic errors are not made. This in turn implies that prices reflect 'fundamentals', that is, economic fundamentals.
Explaining EMH
The Efficient Market Hypothesis (EMH) has been considered as one of the cornerstones of modern financial economics. The efficient-market hypothesis was developed by Professor Eugene Fama in financial literature in 1965 as one in which security prices fully reflect all available information. Efficient market hypothesis is the idea that information is quickly and efficiently incorporated into asset prices at any point in time, so that old information cannot be used to foretell future price movements thus making it difficult for investors to make abnormal returns. Consequently, three versions of EMH are being distinguished depends on the level of available information.
The weak form EMH stipulates that current asset prices already...