 In this section I will be telling you about the rationale of the efficient market hypothesis. So if we say that the stock market price is always representative of all the available information with the investors, with the participants of the financial market, how does it actually operate? So what is the story behind fluctuations in the prices of the stocks and how it is determined and how there are fluctuations and how the extra profit, if it is being earned by any of the investors, can be wiped away and eventually the equilibrium is obtained. So suppose there is a common stock, we are calling it ABC and the normal return on that common stock is suppose 10% and we are expecting that in the future the price of this particular common stock will go up and the price will be 50%. So if the investors come to know about this that the current price is lower as compared to the future price of that particular stock, they will start buying more of it and as a result what will happen the price of that particular stock will start rising. So when the price of that particular stock will start rising obviously the return will start declining and then the price will go up in the beginning but the return will start declining and eventually what happens that the return becomes equal to the optimal forecasted value of the return. Similarly if the price of the current price of a certain stock is higher and it is expected that in future it is going to fall. So then in this kind of a situation the investors will start selling that particular stock in order to make more profit because they are assuming that the current price is higher and in the future it is going to decline. So as a result what will happen the price of that particular asset will start because everybody wants to sell it wants to get rid of it so as a result the price of the actual price of that particular asset instead of rising in the future will actually decline and we will obtain the equality between the current return and the optimal forecasted return and hence the equilibrium will be achieved so extra profit or extra opportunity of getting extra money will will disappear because of these fluctuations. So if there are if the current return or the current price is low and the future price is expected to be higher or vice versa there would be buying and selling accordingly which can be summarized by the symbols which I have used and you can see that if we are if we are saying that in future the optimal forecasted return will be higher than the equilibrium rate of return which you have estimated then what will happen the price will go up naturally everybody will start buying more and more of that particular stock and that will cause a greater demand for that stock and the price will go up when the price will go up the optimal forecasted return will decline similarly if the optimal forecasted return of a certain stock is assumed to be lower i.e. in the future the return is going to work and your equilibrium return you have estimated that in this particular stock from investment we will get about 10% return but you do not see the pertaining of that particular stock very well and you feel that in the future the return is going to decline so this particular thing will cause panic among the investors or the people who are holding that stock and they will start selling that and as a result what will happen since the price will fall you have seen that we have discussed the formula so our optimal forecasted return that will go up so eventually what will happen this optimal forecasted return will become equal to the equilibrium level or the equilibrium for which we have expected the rate of return which we are representing directly it will be equal to that and eventually the equilibrium will be achieved so basically efficient market hypothesis says that the market is very efficiently operating and the level of information or the information quickly disseminates among all the participants of the future market so anywhere in any place where there is any unexploited profit opportunity will be eliminated and eventually you can see that your R steric is the optimal forecasted value of the return becomes equal and the market becomes clear which means that any investor for a very long time cannot earn much profit on a stock or a security basis just as the rest of the participants know that its value is going to work in the future or it is going to be more it also behaves accordingly and your extra normal profits are immediately eliminated and this is a sign or characteristic of the efficient market if we see in the financial structure that there are efficient markets then it means that whatever fluctuations are there or any one investor or a group of investor for a very long time cannot earn much profit on any stock that particular thing will be eliminated quickly