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Key Financial Market Concepts, 2nd Edition by Bob Steiner

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Efficient Markets Hypothesis

Definition

The efficient markets hypothesis (which is not universally accepted) says that financial markets use relevant information ‘efficiently’ – i.e. that the current market price of something already takes account of all available information, so that although you might beat the market sometimes, it is not possible to beat it consistently on average. There are several versions of the hypothesis, some of which imply that beating the market on average is possible in some situations.

How is it used?

The hypothesis was originally developed with stock markets in mind, but the idea extends to other markets. Broadly, it says that the current price of any asset already takes into account all relevant available information ...

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