Efficient Market Hypothesis (EMH) is a financial theory that suggests that asset prices fully reflect all available information at any given time. According to this hypothesis, it is impossible to consistently achieve higher returns than the overall market through stock picking or market timing since prices already incorporate and adjust to new information almost instantly.

Concept and Origin:
The theory of EMH was popularized by economist Eugene Fama in the 1960s. It is based on the idea that markets are ìinformationally efficient,î meaning all relevant data ó such as earnings, news, and economic indicators ó is already factored into stock prices. Therefore, any attempt to outperform the market through analysis or trading strategies would be futile over the long term.

Forms of Market Efficiency:
EMH is classified into three forms, depending on the level of information reflected in stock prices:

• Weak Form Efficiency: Suggests that current stock prices already reflect all past trading data, such as price trends and volumes. Hence, technical analysis cannot generate excess returns.
• Semi-Strong Form Efficiency: States that prices adjust rapidly to all publicly available information, making fundamental analysis ineffective in consistently beating the market.
• Strong Form Efficiency: Claims that all information, including public and private (insider) data, is reflected in prices, implying that no investor can earn abnormal profits.

Criticism and Real-World Perspective:
While EMH provides a structured understanding of market behavior, it faces criticism during periods of market irrationality, bubbles, or crashes. Behavioral economists argue that investor emotions, biases, and herd behavior often lead to mispricing, contradicting perfect efficiency. Nonetheless, EMH remains a cornerstone in modern financial theory and forms the basis of passive investing strategies, such as index funds.

In conclusion, the Efficient Market Hypothesis highlights how information dissemination impacts asset pricing and market behavior. Though real-world deviations exist, it serves as a valuable framework for understanding why consistent outperformance in efficient markets is challenging.