Market Efficiency
The proposition that prices already reflect available information, so consistently earning excess returns from that information is not possible.
How it is identified
Forms: weak, where prices reflect past prices; semi-strong, adding public information; strong, adding private information
Unit
qualitative
In depth
Efficiency is a matter of degree rather than a yes-or-no property, and it varies by market and by security — a widely covered large-cap is more efficiently priced than a small-cap with no analyst coverage. The theory's central implication is that beating the market requires either better information, better analysis, or a different time horizon, and that most attempts fail after costs. Documented anomalies such as momentum and the value effect sit awkwardly with strict efficiency, though many shrink after costs and after publication. The practical takeaway is not that prices are right but that they are hard to beat.
Worked example
A stock covered by 34 analysts and traded by algorithms prices new information in seconds. A small-cap with no coverage and ₹40 lakh of daily turnover may take weeks, which is where the analytical opportunity is greater and the exit harder.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Market Efficiency” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.