Price Efficiency


DEFINITION of 'Price Efficiency'

The premise that asset prices are efficient, to the extent that they already factor in or discount all available information. The theory of price efficiency follows from the efficient market hypothesis, which holds that since markets are efficient, it is nearly impossible for investors to "beat the market" on a consistent basis.

BREAKING DOWN 'Price Efficiency'

The three versions of the efficient market hypothesis (EMH) are all based on varying assumptions of price efficiency. The weak form of EMH claims that the prices of publicly-traded assets already reflect all available information, and past prices are of little value in predicting future trends. The semi-strong version of EMH holds that while prices are efficient, they react instantaneously to new information, while the strong version of EMH maintains that asset prices reflect not just public knowledge, but private insider information as well.

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