Home › Academy › Factor and quantitative investing

Professional · Lesson 1 of 4

Efficient markets and anomalies

7 minute read · By Krishna Avadhani, Vestora Academy · Updated 18 October 2026

Eugene Fama's efficient market hypothesis holds that prices reflect available information, so consistently beating the market after costs is very hard. It comes in weak (past prices), semi-strong (public information) and strong (all information) forms.

Anomalies are patterns that seem to contradict efficiency, such as momentum, the value premium, post-earnings-announcement drift and the low-volatility effect. Debate continues about whether they reflect risk (compensation) or behavioural mistakes (opportunity), and many weaken after publication.

For most investors the practical lesson is humility: low-cost diversified investing captures the market return reliably, and any active strategy must clear costs, taxes and behaviour to be worth it.

Key takeaways

  • EMH: weak, semi-strong, strong forms.
  • Anomalies may be risk premiums or behavioural errors.
  • Many anomalies shrink after publication.

Check your understanding

1. Semi-strong efficiency says prices reflect...

  • Only past prices
  • All public information
  • Insider information too
  • Nothing
Show the answer

All public information. Public information is already priced in.

2. Post-earnings-announcement drift is...

  • Prices continuing to move in the direction of an earnings surprise
  • Dividends rising
  • A tax rule
  • A futures term
Show the answer

Prices continuing to move in the direction of an earnings surprise. Prices under-react to earnings news.

Go deeper

Practise this in Vestora

Look up real shares, test ideas with paper trading, and track your progress through the course.

Open the app free

General education only, not financial advice. Examples are illustrations. Rules, tax settings and products change; check official sources.