5.3.2. Efficient Market Hypothesis
The exam will expect you to know the efficient market hypothesis (EMH). This hypothesis states that the market as a whole has all the information needed to make it operate efficiently, and thus, at any moment, every security in the market is priced at what it is worth. As a result, individual investors and advisers, with their limited access to information, cannot outperform the market on a prolonged basis without incurring more risk than the market. At best, because the market is always right in the long run, they can only hope to match the market’s returns, minus their costs of investing.
By extension, an efficient portfolio is one that offers the highest expected return for a