Efficient-market hypothesis
![Price-Earnings ratios as a predictor of twenty-year returns based upon the plot by Robert Shiller (Figure 10.1,[31] source). The horizontal axis shows the real price-earnings ratio of the S&P Composite Stock Price Index as computed in Irrational Exuberance (inflation adjusted price divided by the prior ten-year mean of inflation-adjusted earnings). The vertical axis shows the geometric average real annual return on investing in the S&P Composite Stock Price Index, reinvesting dividends, and selling twenty years later. Data from different twenty-year
periods is color-coded as shown in the key. See also ten-year returns. Shiller states that this plot](/Images/godic/202501/26/Price-Earnings_Ratios_as_a_Predictor_of_Twenty-Year_Returns_(Shiller_Data)4827.png")
![Daniel Kahneman](/Images/godic/202501/26/Daniel_KAHNEMAN4827.jpg")
In financial economics, the efficient-market hypothesis (EMH) states that asset prices fully reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information or changes in discount rates (the latter may be predictable or unpredictable).