What does the concept of ‘market efficiency’ suggest?

The concept of ‘market efficiency’ primarily suggests that asset prices fully reflect all available information. This means that in an efficient market, investors cannot achieve consistently higher returns than average by using any information that is publicly available, as prices instantly incorporate and reflect that information.

In an efficient market, if new information emerges, it will be rapidly disseminated and assimilated into the pricing of assets, ensuring that prices adjust to reflect this information almost immediately. This underpins the idea that it is difficult for investors to "beat the market" through stock-picking or market timing, as the information used to inform those decisions is already accounted for in the asset prices.

Understanding market efficiency involves recognizing that while prices reflect all available information, the speed and manner of their adjustments can vary. In variance to what might be suggested by other options, the efficient market hypothesis posits that there is a lack of predictable patterns that could be exploited for arbitrage, and that regulation does not primarily drive prices in these contexts.