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Crypto Glossary/Efficient Market Hypothesis

Efficient Market Hypothesis

The idea that all new information is already priced into all markets, making technical analysis ineffective.

The efficient market hypothesis is an economic theory that states that all new and old information in the market is reflected in the prices so fast that it is impossible for the vast majority to generate excess returns and beat the market using technical or fundamental analysis.

Proponents of the hypothesis often fall into one of the following interpretations:

  • All historical information is already priced in and technical analysis will be of no use. However fundamental analysis can give some individuals an edge in the short term.
  • All public information is already priced in and neither technical nor fundamental analysis will be helpful. The only way to outperform in this instance would be to get access to confidential information.
  • All data public and private is already priced in and even insider traders can’t generate any excess return.
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