CONCLUSION

Efficient Market Hypothesis is a milestone on the road to Modern Finance Theory. Following its first presentation to literature by Fama in 70s, EMH has gained a great deal of interest among the academic environment.

Finally, it is noteworthy that; EMH does not assume that all investors are rational, but it does assume that markets are rational. Additionally the EMH does not assume that markets can foresee the future, but it does assume that markets make unbiased forecast errors of the future.

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KEY TERMS AND DEFINITIONS

Agent's Rationality: A rational agent is an agent who has clear preferences, models uncer­tainty via expected values, and always chooses to perform the action with the optimal expected outcome for itself from among all available actions.

Efficient Market Hypothesis (EMH): This hypothesis asserts that financial markets are informationally efficient thus it is impossible to make abnormal returns in the financial markets.

Law of One Price: The theory that the price of a given security, commodity or asset will have the same price in all locations when exchange rates are taken into consideration.

Limits of Arbitrage Theory: This theory con­stitutes that there are many constraints in financial markets that limits the arbitrage opportunities for the rational investors, and resulting inefficiency in financial markets.

Random Walk Hypothesis: In finance theory, the hypothesis states that financial markets and stock prices follow a random path, without any influence by historical price movements. Accord­ing to this hypothesis it is impossible to predict future movements in financial markets or stock prices by using historical data.

This work was previously published in Global Strategies in Banking and Finance, edited by Hasan Dinςer and Umit Hacioglu, pages 173-186, copyright 2014 by Business Science Reference (an imprint of IGI Global).