Question

If no one conducts research, what will keep the market efficient according to the efficient market hypothesis?

Answer 1

Efficient market hypothesis is is an investment theory that highlights the movement of the financial market. Efficient market hypothesis tells us that the prices of securities reflects it's intrinsic value and all the information that is available to public are also reflected in the prices of securities. As all the information available to the investors and traders are reflected in the prices, the overvaluation and undervaluation of prices won't help the investors in gaining an abnormal return.

Market is efficient as all the information available to public are reflected in the prices and research or any kind of technical analysis won't help the investors in gaining an additional advantage over the market returns. If the strong efficient market hypothesis exists, there is no usage of doing fundamental or technical analysis as prices of securities reflects all the information avaliable to public and abnormal profits cannot be achieved. However, if the efficient market hypothesis is weak or semi-strong which means the information that is not available publicly, investors can gain returns above the market return.

Thus, in the strongest form of efficient market hypothesis, conduct of any kind of research is not useful and the prices of the stocks reflects all the available information to the public.