What is the primary assertion of the efficient market hypothesis (EMH)?

The primary assertion of the efficient market hypothesis (EMH) is that all available information is reflected in stock prices. This concept suggests that it is impossible for any investor to consistently achieve returns that outperform the average market returns on a risk-adjusted basis, because any new information that could impact a stock's price is swiftly incorporated into the market.

In essence, under EMH, prices adjust quickly to reflect new information, and therefore, no actionable advantage can be gained from information that is already known or available. This foundational idea implies that the market is efficient, meaning that stock prices are fair and reflect their true value based on the data available at any given time.

The implication of EMH is significant for investors, as it challenges strategies that rely on the ability to predict market movements based on analysis or timing since the market tends to react almost instantaneously to new information. This also means that passive investment strategies, such as indexing, might be more effective for investors than attempting to beat the market through active trading or speculation.