Market efficiency (EMH)

What it means

The proposition that prices already reflect available information, so consistently beating the market on that information is not possible.

The exam angle

Three forms: weak (past prices), semi-strong (all public information), strong (all information, public and private). Technical analysis fails under weak-form; fundamental analysis fails under semi-strong.

Where it appears in the syllabus

• EquitiesCFA Level I · exam weight 11–14% · Market organisation, indexes, industry analysis, dividend models.
• Portfolio ConstructionCFA Level I · exam weight 8–12% · Risk and return, the CAPM, IPS construction, behavioural biases.

Related terms

• BetaThe sensitivity of an asset’s return to the market’s return — its share of systematic risk.
• Capital asset pricing modelA model stating that an asset’s expected return equals the risk-free rate plus beta times the equity risk premium.
• Market-capitalisation-weighted indexAn index in which weights are proportional to constituents’ market values.
• Required rate of returnThe minimum return an investor demands for holding an asset, given its risk.
• Book valueThe accounting value of equity: assets less liabilities as reported.
• Common shareAn ownership claim on a company’s residual cash flows and assets, normally carrying a vote and ranking last in…