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What is an efficient market?

An efficient market is one where all information is transmitted perfectly, completely, instantly, and for no cost. Asset prices in an efficient market fully reflect all information available to market participants. As a result, it is impossible to ex-ante make money by trading assets in an efficient market.

What is an inefficient market?

With an inefficient market, in contrast, all the publicly available information is not reflected in the price, suggesting that bargains are available or that prices could be over-valued. An inefficient market is one that does not succeed in incorporating all available information into a true reflection of an asset's fair price.

What is the efficient markets hypothesis?

The efficient markets hypothesis, or EMH, takes on three forms: weak, semi-strong, and strong. The weak form asserts that an efficient market reflects all historical publicly available information about the stock, including past returns.

What is a weak form of market efficiency?

The weak form of market efficiency is that past price movements are not useful for predicting future prices. If all available, relevant information is incorporated into current prices, then any information relevant information that can be gleaned from past prices is already incorporated into current prices.

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