DEFINITION of 'Informationally Efficient Market'

A theory, which moves beyond the definition of the efficient market hypothesis, that states that new information about any given firm is known with certainty, and is immediately priced into that company's stock.

BREAKING DOWN 'Informationally Efficient Market'

Before any big news release, a company's stock may change in value, due to investors and traders speculating on the stock's intrinsic value after the news release. In an informationally efficient market, there will be little to no price change after the news release comes out. Under this hypothesis any changes in stock price, after a news release, would be due to the interpretation of the news by individual analysts.

RELATED TERMS
  1. Overreaction

    A market hypothesis stating that investors and traders react ...
  2. Price Efficiency

    The premise that asset prices are efficient, to the extent that ...
  3. Hypothesis Testing

    A process by which an analyst tests a statistical hypothesis. ...
  4. Weak Form Efficiency

    One of the different degrees of efficient market hypothesis (EMH) ...
  5. Strong Form Efficiency

    The strongest version of market efficiency. It states all information ...
  6. Semi-Strong Form Efficiency

    A class of EMH (Efficient Market Hypothesis) that implies all ...
Related Articles
  1. Investing

    Market Efficiency Basics

    Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time.
  2. Investing

    Efficient Market Hypothesis: Is The Stock Market Efficient?

    Deciding whether it's possible to attain above-average returns requires an understanding of EMH.
  3. Investing

    Efficient Market Hypothesis

    An investment theory that states it is impossible to "beat the market".
  4. Investing

    Hypothesis Testing in Finance: Concept & Examples

    When you're indecisive about an investment, the best way to keep a cool head might be test various hypotheses using the most relevant statistics.
  5. Investing

    The Upside of Picking Stocks Nobody Follows

    Learn about the upside of picking stocks nobody follows. The less followed a stock, the more opportunity there is for a stock being incorrectly priced.
  6. Investing

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  7. Insights

    What Is Market Efficiency?

    The efficient market hypothesis (EMH) suggests that stock prices fully reflect all available information in the market. Is this possible?
  8. Investing

    Modern Portfolio Theory vs. Behavioral Finance

    Modern portfolio theory and behavioral finance represent differing schools of thought that attempt to explain investor behavior. Perhaps the easiest way to think about their arguments and positions ...
  9. Investing

    What Is The Impact Of Research On Stock Prices?

    The answer to this question is directly related to the importance of information in the marketplace.
  10. Investing

    7 Controversial Investing Theories

    We take a closer look at the theories that attempt to explain and influence the market.
RELATED FAQS
  1. Has the Efficient Market Hypothesis been proven correct or incorrect?

    Explore the efficient market hypothesis and understand the extent to which this theory and its conclusions are correct or ... Read Answer >>
  2. What are the differences between weak, strong and semi-strong versions of the Efficient ...

    Discover how the efficient market theory is broken down into three versions, the hallmarks of each and the anomalies that ... Read Answer >>
  3. What is an efficient market and how does it affect individual investors?

    When people talk about market efficiency they are referring to the degree to which the aggregate decisions of all the market's ... Read Answer >>
  4. What are the primary assumptions of Efficient Market Hypothesis?

    Find out about the key assumptions behind the efficient market hypothesis (EMH), its implications for investing and whether ... Read Answer >>
  5. What does the efficient market hypothesis assume about fair value?

    Found out what the efficient market hypothesis says about the fair value of securities, and learn why technical and fundamental ... Read Answer >>
  6. What does the Efficient Market Hypothesis have to say about fundamental analysis?

    Find out what the efficient markets hypothesis has to say about fundamental analysis and how recent finance research has ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center