what is market efficiancy

Market efficiency refers to the degree to which stock prices reflect all available, relevant information. In an efficient market, it is impossible to consistently achieve higher returns than average market returns on a risk-adjusted basis, because asset prices always incorporate and reflect all relevant information.

There are three forms of market efficiency:

1. Weak Form Efficiency: This suggests that all past trading information is already reflected in stock prices, meaning that technical analysis cannot be used to predict future price movements.

2. Semi-Strong Form Efficiency: This asserts that all publicly available information is reflected in stock prices, implying that neither technical analysis nor fundamental analysis can provide an advantage.

3. Strong Form Efficiency: This posits that all information, both public and private (insider information), is reflected in stock prices, meaning that no one can consistently achieve higher returns.

The concept of market efficiency is a key component of the Efficient Market Hypothesis (EMH), which has significant implications for investors and portfolio management.