The efficient market hypothesis (EMH) posits that securities or assets in a market are fairly priced, reflecting all known information that could impact their value. An efficient capital market is best defined as a market in which security prices reflect all available and relevant information. In other words, it is a market where the prices of securities accurately reflect their intrinsic value.
Market efficiency refers to the degree to which market prices reflect all available, relevant information. If markets are efficient, then all information is rapidly and accurately incorporated into security prices, leaving no room for investors to consistently earn abnormal returns. Efficient market theory suggests that investors cannot consistently outperform the market by using past information or any other publicly available information.
In 1970, in “Efficient Capital Markets: a Review of Theory and Empirical Work,” Eugene F. Fama defined a market to be “informationally efficient” if prices rapidly and accurately reflect all available information. This means that any new information relevant to the securities is immediately reflected in their prices, leaving no room for arbitrage opportunities.