Efficient Markets Hypothesis

This lecture explores the Efficient Markets Hypothesis (EMH) in finance, as introduced by Fama in 1970, which revolutionized the field. It discusses how EMH implies that security prices reflect all available information, leading to the direct link between information and prices. The lecture delves into the implications of EMH on security pricing, market efficiency testing, and different forms of EMH, including weak, semi-strong, and strong forms. It also examines why markets tend to be efficient, the testability of market efficiency, and real-world examples that challenge the EMH. Additionally, the lecture covers event studies, return predictability, cross-sectional anomalies, and mutual fund performance.