Stock Market Glossary

Efficient market hypothesis

Theory that prices immediately price in all available information.

In brief: Theory that prices immediately price in all available information.

Meaning in practice

In the strong form it means that sustained outperforming is impossible. Empirically, there are anomalies (momentum, size, value) – but for most retail investors the EMH is close enough to reality to justify passive investing.

Context for investors and traders

For traders, this term is most useful when preparing and executing an order. Its meaning depends on the venue, liquidity, time frame and order type. A single reading is not a reliable buy or sell decision.

How to use this in practice

Use the term first to describe the situation and add verifiable data: time frame, benchmark, costs and liquidity. Only then does it become an assessment that can be connected to an investment objective and risk budget.

What to keep in mind

Avoid false precision. Many market terms describe probabilities or historical patterns; they neither guarantee a return nor replace the review of a specific security.

What does Efficient market hypothesis mean in simple terms?

Theory that prices immediately price in all available information.

When is this term relevant to investors?

Assess the term together with price, costs, position size and a predefined loss limit. That turns a market observation into a traceable framework rather than an automatic trading rule.

What should I check before acting on Efficient market hypothesis?

Avoid false precision. Many market terms describe probabilities or historical patterns; they neither guarantee a return nor replace the review of a specific security.

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