It operates under three distinct forms.
In the Weak Form, it posits that historical price and volume information is already integrated into current stock prices, rendering technical analysis ineffective.
The Semi-Strong Form extends this idea to encompass all publicly available information, making fundamental analysis, which involves studying financial statements and economic indicators, unable to consistently provide an advantage.
The Strong Form takes it a step further, asserting that all information, even insider knowledge, is fully embedded in current stock prices.
While EMH has been influential in shaping investment philosophy, critics argue that real-world markets deviate from perfect efficiency due to factors like behavioral biases and market anomalies. This ongoing debate influences how investors approach decision-making and portfolio management, weighing the merits of active versus passive investment strategies. Despite the critique, EMH remains a significant concept in financial theory.
