Define the efficient market hypothesis (EMH). What are the implications of EMH for corporate managers?
The efficient market hypothesis (EMH) is a theory of investment in which share prices are reflective of all information and the consistency of alpha generation is guaranteed. In theoretical terms, neither fundamental nor technical analysis have the ability to produce a risk adjusted excess returns in a consistent manner and its only internal information that can lead to vast risk- accustomed returns. Similarly, in EMH, stocks have the tendency of trading at their fair value on stock exchanges and thus making it difficult for potential investors to buy undervalued stocks and vice versa.