Efficient markets hypothesis (EMH) says that stocks always trade at a fair value as all the current information is reflected in the price. There is a fairly good article on this at Investopedia. There is also an article on Wikipedia. You can find scholarly articles also on the interest by googling it.
I think that Efficient Markets Hypothesis (EMH) is a myth. I do not believe that markets get prices right. If EMH was correct we would not get bubbles or bear markets. The market is made up of people, and people are emotional. Stocks are often under or overvalued. For example, if a company cuts its dividends, dividend investors can get mad and the stock drops more than it should on valuation alone.
My definition of a bear market is when most people worry about the same problem at the same time. The problem could have been around for many months, but all of a sudden, people worry. A bubble occurs because most people get excited about some aspect of the future. Of course, bubble can occur for other reasons as assets can bubble because of low interest rates, but that is an entirely different subject.
On my other blog I wrote yesterday about Accord Financial Corp (TSX-ACD, OTC-ACCFF) ... learn more. Next, I will write about Telus Corp. (TSX-T, NYSE-TU) ... learn more on Wednesday, September 19, 2018 around 5 pm.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.