Abstract

<p>The Efficient Market Hypothesis (EMH) has historically served as a foundational principle in financial economics, asserting that stock prices fully and immediately reflect all available information. Under this framework, it is presumed that no investor can consistently achieve above-average returns through market timing or stock selection. However, this long-standing theory has faced increasing scrutiny, particularly in light of financial crises and evolving market dynamics. Scholars such as Malkiel (2017) and Audu et al. (2022) have criticized the EMH for its inability to anticipate or account for significant market disruptions, highlighting its limitations in real-world applications.</p>
<p>This paper critically examines the debate surrounding market efficiency by analyzing both the theoretical assumptions and empirical challenges associated with the EMH. While the hypothesis assumes perfect information dissemination, rational investor behavior, and minimal transaction costs, these ideal conditions are often absent in actual financial markets. Instead, evidence points to the presence of asymmetric information, investor psychology, and behavioral biases that frequently lead to market anomalies and mispricing of assets.</p>
<p>Drawing from a comprehensive literature review and analysis of empirical studies, the research reveals that financial markets are not always efficient in practice. The persistence of speculative bubbles, overreactions to news, and the influence of institutional trading strategies all point to systemic inefficiencies that challenge the EMH’s assumptions. Furthermore, transaction costs and unequal access to information continue to hinder the equal participation of market actors, undermining the ideal of fully efficient markets.</p>
<p>The findings suggest that while the EMH may hold under certain idealized conditions, real-world stock markets are often influenced by complex, non-rational behaviors and structural barriers. As such, a more flexible and context-sensitive understanding of market efficiency is warranted—one that integrates insights from behavioral finance and recognizes the limitations of purely rational models. This perspective can better inform investors, financial analysts, and policymakers in navigating and regulating contemporary financial markets</p>