Efficient Markets Hypothesis

Efficient market hypothesis was introduced by French mathematician Louis Bachelier in 1900 in his dissertation. It was unnoticed until 1930s when some works start mentioning his study. It was in the 1960s when the efficient market hypothesis became a known theory in economics. This was primarily due to the efforts of Paul Samuelson to share Bachelier's theories to the economists.

It was a professor from the University of Chicago Graduate School of Business Professor Eugene Farma who developed the efficient market hypothesis into an academic concept. He published this in his these in the 1960s. The efficient markets hypothesis was accepted until the 1990s, the time that behavioral finance economists became mainstream. There were some problems that were found regarding the efficient market hypothesis, which were mainly due to the empirical analyses done on low price stocks.

In the efficient market hypothesis, it is stated that financial markets are efficient when it comes to information. What this would mean is that the prices of stocks, bonds and other assets that are being traded only reflect information that is already known to the market.

By expounding on the efficient market hypothesis, it would mean that it is not possible to always outperform or win the market if the market already knows the information being used. The only way to consistently outperform the market is through luck. Any news regarding the efficient market hypothesis is related to anything that might affect the prices of the commodities that would randomly appear in the future but such information is not yet available today.