Efficient markets theory

Efficient markets theory is a field of economics which seeks to explain the workings of capital markets such as the stock market. In an efficient market, the prices of stocks reflect a rational assessment of the true underlying worth of a stock. This can be contrasted with an inefficient market in which prices might be affected by other factors such as fashion, greed, panic and stock market bubbles. A central part of this theory is the Efficient market hypothesis.

See also: insider trading, technical analysis