gen-briefly-explain-the-efficient-market-hypothesis-and-one-comm-be07

Briefly explain the efficient market hypothesis and one common misconception about it.

# Efficient Market Hypothesis (EMH) **Core idea:** The EMH states that asset prices fully reflect all available information. In an efficient market, stocks always trade at their fair value, making it impossible to consistently "beat the market" through stock picking or market timing. ## Common Misconception **Misconception:** "EMH means markets are always right and prices are always perfect." **Reality:** EMH doesn't claim prices are always correct—it claims prices are *unbiased*. Markets can be wildly wrong, but the errors are random and unpredictable. You can't systematically exploit these mispricings because you can't reliably identify them in advance. The hypothesis is about the *impossibility of consistent outperformance*, not about markets being infallible.