Final answer:
The efficient market hypothesis suggests that stock prices reflect all known information, making it impossible to beat the market. However, events like the 1987 crash and the 2000-2001 tech bubble burst suggest markets can be inefficient.
Step-by-step explanation:
The efficient market hypothesis (EMH) posits that all known information about investment securities, such as stocks, is already reflected in their prices. According to this theory, no amount of analysis can give an investor an edge over the market because all the available information is already built into stock prices.
For instance, the stock market crash of October 1987, also known as Black Monday, saw the Dow Jones Industrial Average plunge by over 22%, suggesting that investor panic and behavioral factors played a role in stock valuations that the EMH does not account for.