Efficient market Hypothesis


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Efficient market hypothesis investment theory states that; it is impossible to beat the market because efficiency causes existing share prices to always incorporate the reflected information. According to EMH, stocks always trade at their value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. (David, 2005) Its key principle is that it is impossible to outperform the overall market through expert stock selection or market timing, and that only way an investor can possibly obtain higher returns is by purchasing riskier investments. This theory has to be re evaluated in its said hypothesis that beating the market is next to impossible. The insincerity of this kind of hypothesis and the reality on the ground leaves a lot to be desired because it is skeptical of efficiency of financial analysts. For financial analysts to be efficient they have to discredit this theory. Its contents and explanations have to be evaluated (David, 2005).