Efficiency of market implies that all known information is immediately discounted by all investors and reflected in share prices in the stock market. In an ideal efficient market, every one knows all possible-to-know information simultaneously, interprets it similarly and behaves rationally. In such a situation, the only price changes that would occur are those which result from new information. In an efficient market, liquid capital will channel quickly and accurately where it will do the community the most good / generate higher return.
In an efficient market, all the relevant information is reflected in the current security price. Information cannot be used to obtain excess return and the information has already been taken into account and absorbed in the prices. Thus, all prices are correctly stated and there are no bargains in the capital market.
139 Comments