What does the Efficient Market Hypothesis imply about financial asset pricing?

The Efficient Market Hypothesis (EMH) posits that financial asset prices reflect all available information at any given time. This means that traders interpret and act upon the information that is currently accessible, leading to a market price that accurately reflects an asset's intrinsic value based on that data. In an efficient market, since all known information is already incorporated into the asset prices, it is challenging for any individual trader to consistently achieve higher returns than the overall market average, unless they have access to some information that is not yet known to others.

In essence, the hypothesis suggests that markets are efficient in processing information, which results in asset prices adjusting quickly and accurately. Thus, the assertion that traders base prices on available information aligns perfectly with the fundamental premise of EMH. This understanding helps investors recognize that pursuing information-based trading strategies may not lead to the expected excess returns due to the competitive nature of market participants who are also acting on the same information.