Define the efficient market hypothesis (EMH)

The efficient market hypothesis is the theory for the stock price, which states that the cost of shares depends upon the information, and thus it reflects the related information. Due to the association of information, the stocks are traded at the fair market value at the exchanges. Due to the trading at fair market value, the investors also get the actual price of shares when they are bought or sold.

The impact of EMH for corporate management is that if the share price reflects information correctly, then the managers should desist from too much stock hunting. As per the manager, it is better to invest money in a passively managed portfolios to earn average returns.