Efficient Markets Theory
Efficient Markets Theory Meaning:
A theory which says that financial markets react continuously and instantaneously to new information, so that new information is already priced into share prices by the time there is an opportunity to trade on it. Whether or not the efficient markets theory is correct is debatable, and there is considerable evidence against it.
A theory which says that financial markets react continuously and instantaneously to new information, so that new information is already priced into share prices by the time there is an opportunity to trade on it. Whether or not the efficient markets theory is correct is debatable, and there is considerable evidence against it.
If true, the efficient market theory would make stock analysis pointless, as nothing could be discovered from publicly available information that hadn’t already been priced into the price of the stock. On the other hand, it’s possible that stock prices are not efficient, and reflect not just information but also emotions such as fear and greed. In this case buying when others are selling and selling when others are buying might be a good strategy.