The Efficient Market Hypothesis (EMH) states that price of a particular security is the reflection of all information and that it should always trade at its fair value in the stock exchange. Any temporarily dislocation, for instance, a sudden spike in price for no valid reasons would be acted upon immediately by selling counter parties and price would revert back to fair value almost immediately. On the other hand, if bad news is anticipated, investors would start to sell and continue to do so until an acceptable price is reached. Eugene Fama, from whom the Hypothesis originates, makes the best case for it in his 1965 PhD thesis.
...“An ‘efficient’ market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In ...
