The Efficient Market Hypothesis (EMH)

efficient market. In a perfectly efficient market, prices always reflect all known information and they adjust instantaneously to new information. In an economically efficient market, prices might not adjust to new information right away, but over the long run, speculative profits cannot be earned after factoring in transaction costs. Economic efficiency is the more commonly used in finance research. Jones (1998) argues that the capital market is not perfectively efficient, and it is not certain perfectly inefficient. It is therefore a question of the degree of efficiency of the market. Perfectly efficiently market will only exists under certain market conditions. To begin with, information relevant to the assessment of the firm’s future earnings,

Fama, in 1965, organized growing empirical evidence of efficient capital markets and came up with the efficient market hypothesis (EMH) as a formal statement of the market efficiency concept (Jones, 1998). Standard practice since then has been discussing the efficient market concept in the form of the EMH.
The Efficient Market Hypothesis states that, an efficient market is one which information is readily and widely available to investors and all relevant and ascertainable information is already reflected in security prices (Brealey & Myers, 1988). Therefore, sales in an efficient market cannot result in abnormal profits because the quick reaction of investors to new information ensures that the market is always close to its true value. This means that it is impossible for any investor or group of investors to consistently outperform the market except by luck (Pike & Neale, 2003). How quickly new information is reflected in share prices is key to market efficiency (Emery, et al,

However, since conditions for a perfect market do not exist in a real capital market, security prices may not fully reflect all relevant information. Fama therefore pointed out the need to define the requirement for a stock price to fully reflect information in EMH in terms of expected return from holdings a security. He also pointed to the need to define relevant information in the EMH, and in defining it, he divided the market into three levels: the weak form, the semi strong form and the strong form.
The EMH has three sub-hypotheses: the weak form, semi strong and strong form efficient market hypotheses. Each deals with a different level of cumulative information. This study, in general terms, purposed to determine whether the NSE is weak-form efficient where prices reflect only all available past information, or strong-form efficient where prices reflect all information, both public and private, or whether NSE portrays the semi-strong form EMH, which asserts that security prices adjust rapidly to the release of all public