In finance, the efficient market hypothesis (EMH) asserts that stock prices are determined by a discounting process such that they equal the discounted value (present value) of expected future cash flows. It further states that stock prices already reflect all known information and are therefore accurate, and that the future flow of news (that will determine future stock prices) is random and unknowable (in the present). The EMH is the central part of Efficient Markets Theory (EMT). Both are based partly on notions of rational expectations.
The efficient market hypothesis implies that it is not generally possible to make above-average returns in the stock market by trading (including market timing), except through luck or obtaining and trading on inside information. There are three common forms in which the efficient markets hypothesis is commonly stated - weak form efficiency, semi-strong form efficiency and strong form efficiency, each of which have different implications for how markets work.