Market efficiency is the concept that markets have synthesized all available knowledge into the prices. Thus, the prices reflect that knowledge. By extension of this, there is little that an investor can do to "beat" the market -- that is to outperform market returns on a risk-adjusted basis. The theory of market efficiency is best encapsulated in the Efficient Market Hypothesis. This paper will explain market efficiency in detail and outline how understanding market efficiency can help investors to maximize shareholder wealth.

Heakal (2009) explains that Eugene Fama first proposed the efficient market hypothesis (EMH) in 1970. The EMH is based on the idea that "at any given time, prices fully reflect all available information on a particular stock and/or market" (Ibid). A perfectly efficient market will account for all publicly available information that can have an impact on the stock price. This information can be about the stock --...
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