Statistical research has shown that to a close approximation stock prices seem to follow a random walk with no discernible predictable patterns that investors can exploit. Such findings are now taken to be evidence of market efficiency, that is, evidence that market prices reflect all currently available information. Only new information will move stock prices, and this information is equally likely to be good news or bad news.

Market participants distinguish among three forms of the efficient market hypothesis. The weak form asserts that all information to be derived from past trading data already is reflected in stock prices. The semistrong form claims that all publicly available information is already reflected. The strong form, which generally is acknowledged to be extreme, asserts that all information, including insider information, is reflected in prices.

Technical analysis focuses on stock price patterns and on proxies for buy or sell pressure in the market. Fundamental analysis focuses on the determinants of the underlying value of the firm, such as current profitability and growth prospects. Because both types of analysis are based on public information, neither should generate excess profits if markets are operating efficiently.

Proponents of the efficient market hypothesis often advocate passive as opposed to active investment strategies. The policy of passive investors is to buy and hold a broad-based market index. They expend resources neither on market research nor on frequent purchase and sale of stocks. Passive strategies may be tailored to meet individual investor requirements.

Event studies are used to evaluate the economic impact of events of interest, using abnormal stock returns. Such studies usually show that there is some leakage of inside information to some market participants before the public announcement date. Therefore, insiders do seem to be able to exploit their access to information to at least a limited extent.

Empirical studies of technical analysis do not generally support the hypothesis that such analysis can generate superior trading profits. One notable exception to this conclusion is the apparent success of momentum-based strategies over intermediate-term horizons.

Several anomalies regarding fundamental analysis have been uncovered. These include the P/E effect, the small-firm-in-January effect, the neglected-firm effect, post–earnings-announcement price drift, and the book-to-market effect. Whether these anomalies represent market inefficiency or poorly understood risk premiums is still a matter of debate.

By and large, the performance record of professionally managed funds lends little credence to claims that most professionals can consistently beat the market.