Which of the following are key assumptions of the Efficient Market Hypothesis (EMH)?

The Efficient Market Hypothesis (EMH) is founded on several key assumptions that define how markets operate and how information is processed by investors. The statement that markets are efficient, investors are rational, and all information is reflected in prices captures the essence of EMH. This means that in an efficient market, stock prices always incorporate and reflect all available information, which leads to the idea that it is impossible to consistently achieve higher returns than the average market return on a risk-adjusted basis.

Rational investors make decisions based on the available information, acting to take advantage of any mispricings in the market. If all participants are rational and markets are efficient, then any new information is quickly absorbed and reflected in asset prices, leaving no room for arbitrage opportunities that could lead to above-average returns.

In contrast, other choices either misrepresent the assumptions of EMH—such as suggesting that investors are irrational or that prices are solely reflective of past information—or incorrectly imply that government intervention creates fairness in prices or that information asymmetry is a source of inefficiency. These notions do not align with the core principles of the Efficient Market Hypothesis, making the selected choice the strongest representation of EMH assumptions.