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Efficient market theory is important for companies that sell their debt and equity. It is also...

Efficient market theory is important for companies that sell their debt and equity. It is also important for investors that buy and sell these securities. What is an efficient market theory? Are American markets efficient?

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Efficient market theory or hypothesis postulates that all the information about a particular stock is publicly available and hence there is no way that an investor can make higher returns than the average market portfolio. In other words, the investors can never profit handsomely due to under or overvaluation of a stock. There are 3 different types of market efficieny- Strong, Weak and Semi strong.

American markets cannot be termed efficient for we see number of value investors like Warren Buffet, Peter Lynch profiting at incorrect valuations of individual stocks.

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