The Efficient Market Hypothesis (EMH), alternatively known as the efficient market theory, is a hypothesis that states that share prices reflect all information and consistent alpha generation is impossible. The EMH was developed by Eugene Fama in the 1960s, who proposed that stock prices are always rational and cannot be predicted because they incorporate all publicly available information. This means that investors cannot consistently outperform the market by analyzing publicly-available data or making informed investment decisions.While there have been many criticisms of the EMH over the years, there is evidence to suggest it may hold true in certain cases. For example, a study by Narasimhan Jegadeesh and Sheridan Titman found that stocks with strong past performance tend to continue performing well in future periods, suggesting that past price trends are indeed incorporated into current stock prices. However, there are also numerous cases where stock prices have failed to reflect underlying fundamentals or where bubbles have formed due to irrational investor behavior. Overall, while the EMH may not be perfect it likely plays a role in how markets function overall.
