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The theory that asset prices fully reflect all available information, making it impossible to consistently outperform the market through stock selection or market timing.
EMH comes in three forms: weak (prices reflect all past trading data), semi-strong (prices reflect all publicly available information), and strong (prices reflect all information, including insider knowledge). If markets are truly efficient, then active management is futile and investors should buy index funds. While no market is perfectly efficient, developed markets like the U.S. stock market are considered highly efficient. The success of index investing supports EMH, though occasional market anomalies and the existence of consistently successful investors like Warren Buffett challenge its strongest form.