Investor Glossary-efficient market theoryInvestor Glossary-efficient market theoryInvestor Glossary-efficient market theoryInvestor Glossary-efficient market theoryInsightful stock market charts - Click here
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Efficient Market Theory

The HTML to link to this page

Developed by University of Chicago professor Eugen Fama in the 1960s, the efficient market theory states that, at any given time, all available information is fully reflected in securities' prices. The efficient market theory implies that no investor can consistently outperform the market since every stock is appropriately priced based on available information. The efficient market theory comes in three versions. In the strong form, the efficient market theory asserts that all information (including insider information) is incorporated in share prices. The semistrong version of the efficient market theory says that all publicly available information is reflected in share prices. The weak form of the efficient market theory asserts that past information is reflected in current share prices. Investors who accept the efficient market theory believe the portfolio manager's role is to tailor portfolios to specific investor needs, not outperforming the market. Subsequent studies have uncovered market anomolies inconsistent with the efficient market theory and resulted in the rejection of efficient market theory by most investors.

Rate this Efficient Market Theory definition...

Learn about investing with the Investor Glossary Term of the Day

Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.

Popular Terms: required rate of return, ex-dividend date, Key Rate Duration, FICO score, VIX, deferred revenue, class C shares, in escrow, wholly-owned subsidiary, reverse mortgage, minority interest, option premium, risk management, LIBOR, irrevocable trust, average price per share, 144a, implied volatility, margin rate, annual return, current ratio, dividends payable, Zero Cost Collar, real GDP, limit order, EBITDA, open position, stock market close, cancelled check, retained earnings, debt service coverage, deferred tax, phantom income, command economy, APR, ex-dividend, FTSE, per diem, 1031 exchange, labor relations, inflation, stock split, covered put, 401a, diluted share, liquidity ratio, balance sheet, 1035 exchange, quality assurance

Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use