Efficient Market Theory (EMT)

Hello there,

I know that I said that I was going to read about and discuss patterns in the stock market, but first here's a little bit of information that crops up fairly often in the process of learning about the stock market, and that is the 'Efficient Market Theory' or EMT.

The basis around the theory is that the market is efficient such that the stock reacts to price in an efficient manner.  That is to say that information is reacted to quickly by analysts and 
investors to the point that there is no benefit in analysing the market, inflation and so on, since the 
price is already reflected in the stock market.

There are three theories surrounding EMT, weak, semi-strong and strong versions that basically suppose that varying levels of information is efficiently reflected in the price.  Weak being the least effective, and strong being the most.  Strong EMT is supposed to be so efficient that there is absolutely no benefit from for one analyst over another in analysing economics.  Insider trading in this case also has no effect, as the price already reflects the information that the insider trader possesses.

A lot of other theories are under-pinned by EMT, so I thought that I'd try to explain this now, before we need to discuss it in the context of some other more complex theory.