Write short notes on concept of ‘Efficient Market’

The concept of 'Efficient Market' is a fundamental theory in finance that suggests that financial markets are always perfectly efficient. This means that it is impossible to consistently achieve higher than average returns on investments because all relevant information is already incorporated into the price of securities. Here are some key points:

1. Informational Efficiency: This is the core of the efficient market hypothesis. It suggests that at any given time, prices fully reflect all available information. This includes not only historical information but also public and even private information.

2. Forms of Market Efficiency: There are three forms of market efficiency - weak, semi-strong, and strong. The weak form suggests that all past market prices and data are incorporated into stock prices. The semi-strong form suggests that all public information is incorporated into stock prices, not just past prices. The strong form efficiency suggests that all information, public and private, is fully accounted for in stock prices.

3. Implications of Efficient Market: If the market is efficient, it is impossible to outperform the market through expert stock selection or market timing, and the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

4. Critiques of Efficient Market: While the efficient market hypothesis is widely taught, it has also been widely criticized. Critics argue that there are too many instances of market anomalies, like severe market crashes and the dotcom bubble of the late 1990s, to believe that markets are always efficient.

5. Behavioral Finance: This is a field of study that argues that cognitive psychological biases heavily influence the financial actors, and hence market prices are not always rational or efficient.

In conclusion, the concept of 'Efficient Market' is a key theory in finance, but it is not without its critics. It is a useful model for understanding the basics of how markets operate, but it may not always accurately describe real-world financial markets.