What does the efficient market hypothesis (EMH) suggest?

The efficient market hypothesis (EMH) posits that financial markets are "informationally efficient," meaning that asset prices reflect all available information at any given time. This leads to the conclusion that it is impossible to consistently achieve returns that exceed average market returns on a risk-adjusted basis. This is because any new information is quickly incorporated into asset prices, making it difficult for investors to identify undervalued or overvalued securities.

The implication of EMH is that strategies aimed at outperforming the market—whether through expert analysis, timing trades, or other methods—are unlikely to succeed consistently over time, as the market quickly adjusts to any new information that might otherwise provide an advantage. Thus, even professional fund managers find it challenging to outperform the market after accounting for fees and other costs.

The other options diverge from the core tenets of the EMH. The idea that asset prices are always above intrinsic value misrepresents the notion of efficiency. Predicting market trends contradicts the hypothesis, as EMH suggests that information is already priced into market movements, and frequent trading does not align with the recommended passive investment strategies that embrace EMH principles.