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What is an Efficient Market?
The simplest definition of market efficiency is that the price already reflects the available information and thus buying or selling the stock should, on average, return you only a "fair" measure of return (after transaction costs) for the associated risk.On average you will make money, but the money you make is just enough to offset the risks you have assumed.
There are three basic types of information efficiency. Strong form, Semi-strong form, and Weak form.
Here are some of my old class notes on the Efficient Market Hypothesis (EMH).
I also highly endorse the reading of Ray Ball's Theory of Stock Market Efficiency: accomplishments and limitations. It is published as part of Chew's The New Corporate Finance. Additionally Fama, 1991, has an excellent summary article on market efficiency. Both of these are summarized on my summaries page.
Possibly less academic in nature but more convincing in reality is the fact that so few people or mutual funds either in the US, or abroad, do actually beat the market on a risk adjusted basis.
For more notes on market efficiency check my advanced notes.
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