The age-old debate between active and passive investing hinges on the efficient market hypothesis (EMH); this is where asset prices reflect all information and consistent outperformance on a risk-adjusted basis (alpha) is not possible. This is then split into 3 main forms of EMH

  1. Weak form – This suggests that stock prices reflect past pricing data and that technical analysis cannot be used to generate consistent risk-adjusted outperformance. On the other hand, fundamental analysis could be used to find under or overvalued stocks.
  2. Semi-strong form – This suggests that all public information is reflected in a stock’s price and neither technical nor fundamental analysis can be used to achieve alpha. Private information can be used to generate alpha.
  3. Strong form – This suggests that all information (public and private) is reflected in a stock’s current price and there is no way to achieve returns greater than the market return.

Along the spectrum of the

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