Final answer:
The Efficient Market Hypothesis (EMH) may be less likely to hold when fundamentals suggest stocks should be at a lower level due to investor irrationality and market inefficiencies.
Step-by-step explanation:
The Efficient Market Hypothesis (EMH) is a theory that states that financial markets are efficient and asset prices reflect all available information. However, there are certain situations where the EMH may be less likely to hold, even when fundamentals suggest that stocks should be at a lower level. One reason for this is investor irrationality or behavioral biases.
For example, if investors have an overly optimistic outlook on a company's future prospects, they may bid up the stock price even when the fundamental data suggests otherwise. This can create a situation where stocks are overvalued and not in line with the company's actual performance.
Another reason is the presence of market inefficiencies. These inefficiencies can arise due to factors like information asymmetry, imperfect competition, or market manipulation. In such cases, the stock price may not accurately reflect the true value of the company, leading to deviations from the efficient market hypothesis.