Market Efficiency implies that all known information is immediately discounted by all investors and reflected in share prices in the stock market. As such, no one has an information edge, in the ideal efficient market. As such, no one has information simultaneously, interprets it similarly, and behaves rationally. But, human beings what they are, this of course rarely
In such a world, the only price changes that would occur are those which result from new information. Since there is no reason to expect that information would be non-random in its appearance, the period-to-period price changes of a stock should be random movements, statistically independent of one another.
The efficient market will provide ready financing for worthwhile business ventures. Corporations that are poorly managed or producing obsolete products. Capital drain away from that market.
The requirements for a securities market to be efficient market are:-
1) To supply new inventories to the firm, prices must be efficient.
2) Across the nation information freely and quickly must be discussed. All investors can react to new information.
3)Transaction costs as sales commission on securities are ignored.
4) No noticeable effect on investment policy, taxes are assumed
5)Every investor is allowed to borrow or lend at the same rate and finally.
6)Investors must be rational and able to recognize efficient assets and that will want to invest money where it is needed most.