Trading & Markets

Efficient Market Hypothesis

Also known as: EMH

The proposition that asset prices already reflect available information.

Weak form: prices reflect past prices. Semi-strong: plus all public information. Strong: plus private information.

The useful reading for an interview is not whether it is true, but as a null hypothesis and a discipline. If you claim an edge, you are claiming to know why the market has not already removed it - and having an answer to "why does this persist?" separates a real idea from a data-mined one.

The paradox worth naming: if markets were perfectly efficient, nobody would have an incentive to gather information, and they would stop being efficient. Efficiency requires people trying to beat it.

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