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From: Rutgers12/30/2005 9:25:42 AM
   of 285
 
Is the market efficient?

milliondollargoal.blogspot.com

In finance, the efficient market hypothesis (EMH) asserts that financial markets are "efficient", or that the current price of a share reflects everything that is known about the company and its future earnings potential, and is, therefore, accurate in the sense that it reflects the collective beliefs of all investors about future prospects.

EMH suggests that the army of analysts and fund managers whose job is to actively manage portfolios are engaged in a futile exercise because everything they find out is rapidly transmitted around the market, and share prices instantly reflect the common knowledge. In other words, no one can get one up on anyone else. And the logical extension of this is that passive funds - tracker and index funds - are the best place to park your money, because their management costs are much lower and they are mathematically structured to match the performance of their chosen index.
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