What Is the Efficient Market Hypothesis?

By Jeremy Bowman – Updated Sep 14, 2025 at 3:30 PM

Key Points

Efficient market hypothesis posits stock prices reflect all known info, making market timing tough.
Critics argue market sentiment and future predictions also shape stock valuations, not just known info.
Adherents of the hypothesis favor index funds, believing any stock outperformance is largely random.

Loading paragraph...

Stock market numbers and arrows and lines. — Image source: Getty Images.

Loading image...

Loading paragraph...

Index Fund

A type of mutual fund or ETF designed to replicate the performance of a specific market index by holding a diversified portfolio of assets.

Loading paragraph...

How to Invest in Etsy Stock

Etsy is a leading e-commerce platform for handmade and vintage products. Check out how to invest in Etsy.

How to Invest in an IRA: Everything You Need to Know

Learning how to invest in an IRA now can pay off big-time in your senior years.

What Is a Bond Rating?

A bond's rating can say a lot about a particular security and its investment risk level.

How to Calculate the Marginal Tax Rate in Economics

This concept plays a key role in tax planning, and understanding it can guide more tax-efficient investment choices.

Loading hub_pages...

One key lesson from the efficient market hypothesis is that you're unlikely to gain an advantage in the market by finding information that isn't priced in. Instead, you're better off considering what the market is missing about a stock and what is misunderstood about the company's future.

Loading paragraph...

About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

TMFHobo

@TMFBowman

The Motley Fool has a disclosure policy.