BUS-FPX 4070
Assessment 5
Capella University
The efficient market hypothesis (EMH) is a theory stating “stocks always trade at their
fair value on exchanges, making it impossible for investors to purchase undervalued stock or sell
stocks for inflated prices.” (Downey, 2024) Downey goes on to further discuss the low
possibility of surpassing the performance of the encompassed market as a whole through expert
stock selection (market timing), thus the only way for an investor to be able to gain a higher
return is through the purchase of investments that yield a higher risk factors.
EMH consists of three different forms: weak, semi-strong, and strong. EMH in its weak
form suggests that the current stock prices are reflected against all available security market
information. This form contends that the previous price and volume data show no correlation to
Assessment 5
Capella University
The efficient market hypothesis (EMH) is a theory stating “stocks always trade at their
fair value on exchanges, making it impossible for investors to purchase undervalued stock or sell
stocks for inflated prices.” (Downey, 2024) Downey goes on to further discuss the low
possibility of surpassing the performance of the encompassed market as a whole through expert
stock selection (market timing), thus the only way for an investor to be able to gain a higher
return is through the purchase of investments that yield a higher risk factors.
EMH consists of three different forms: weak, semi-strong, and strong. EMH in its weak
form suggests that the current stock prices are reflected against all available security market
information. This form contends that the previous price and volume data show no correlation to
