Efficient Market Hypothesis (EMH)
Chapters in this video
- 0:00 The vault analogy: can you beat the market at all
- 1:25 EMH core idea and the Carl vs. Iris setup
- 1:52 Weak form: historical data kills technical analysis only
- 3:33 Semi-strong form: all public information kills both technical and fundamental analysis
- 4:15 Strong form: all information kills everything, but only in theory
- 5:35 Market anomalies: glitches that challenge but never disprove EMH
- 7:21 Rapid-fire exam recap
What this video covers
- What the Efficient Market Hypothesis (EMH) actually claims: that security prices fully reflect all available information, making consistent outperformance impossible
- Weak form efficiency: prices reflect all historical market data, rendering technical analysis useless while fundamental analysis and insider information may still work
- Semi-strong form efficiency: prices reflect all publicly available information, killing both technical and fundamental analysis while leaving only illegal insider information as a potential edge
- Strong form efficiency: prices reflect all public and private information, a purely theoretical construct that is NOT supported by real-world empirical evidence since insiders do earn excess returns
- Market anomalies (January effect, small-firm effect, value effect, momentum) and why they challenge the EMH but do not disprove it
- Investment implications of each EMH form: when passive strategies, active fundamental analysis, or full active management are rational choices
- The exam distinction between theory and reality, especially the trap that strong form is theoretical while insider trading actually works in practice
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