The Efficient Markets Hypothesis (EMH) holds that stocks are always in equilibrium and that it is impossible for an investor to consistently beat the market.

The weak-form of the EMH states that all information contained in past price movements is fully reflected in current market prices.

The semistrong-form of the EMH states that current market prices reflect all publicly available information. If this is true, no abnormal returns can be gained by analyzing stocks. Another implication of semistrong-form efficiency is that whenever information is released to the public, stock prices will respond only if the information is different from what had been expected.

The strong-form of the EMH states that current market prices reflect all pertinent information, whether publicly available or privately held (inside information). If this form holds, even insiders would find it impossible to earn abnormal returns in the stock market.

In general, stocks are neither overvalued nor undervaluedthey are fairly priced and in equilibrium.

Empirical tests have shown that the EMH is, in its weak and semistrong forms, reasonably valid.

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