Chartered Market Technician Practice Exam 2025 – Complete Prep Guide

The term "efficient market" in finance is closely associated with the Efficient Market Hypothesis (EMH), which asserts that asset prices fully reflect all available information at any given time. This means that in an efficient market, it is impossible to consistently achieve higher returns than average market returns on a risk-adjusted basis because any new information that could affect an asset's price is quickly incorporated into that price.

This concept highlights that whether information is public or private, it is factored into the current price of securities, making it difficult for investors, including both individual and institutional investors, to buy undervalued stocks or sell overvalued ones to realize abnormal profits. Understanding the efficiency of markets helps in recognizing the challenges of market timing and the importance of informed decision-making based on existing information.

In contrast, other choices imply different scenarios that do not align with this concept. For instance, the idea that markets are always in equilibrium overlooks the dynamic nature of human behavior and market fluctuations. The notion that only institutional investors can profit suggests an unfair advantage that contradicts the premise of an efficient market. Lastly, the idea that prices are predictable based on historical data directly challenges the EMH, which posits that past information has limited usefulness for predicting future price