It can be argued that the basically theoretical background of EMH rests on three arguments which rely on progressively weaker assumptions.

First, it is assumed that participants in the market are rational and that they do not make systematic errors in valuing the securities in the market. Sec­ond, some investors may be irrational, but as they trade randomly, they cancel out the effects of each other’s irrationality without affecting prices. Third, even though there are some irrational investors, they are met in the market by rational arbitrageurs who eliminate their influence on prices. The ideas which challenge EMF are based upon these three assumptions. In the following subsections, this section will briefly discuss these three assumptions in finance literature (Shen, 2002, p. 2).