Final answer:
The Efficient Market Hypothesis suggests that stock prices reflect all available information, making it impossible to consistently outperform the market. It contributes to the understanding that stock prices move unpredictably day-to-day but tend to increase over time. Thus, current prices reflect all useful information as per EMH. The correct option is d.
Step-by-step explanation:
The Efficient Market Hypothesis (EMH) is a cornerstone of modern financial theory that suggests that at any given time, security prices fully reflect all available information. This implies that it is impossible to consistently achieve returns that outperform the market by using information that the market already knows, because current prices reflect all such information. This concept rules against the efficacy of both technical analysis, which uses past price movements to predict future stock performance, and fundamental analysis, which assesses a company's financial health to predict stock performance, as methods to consistently outperform the market.
In line with EMH, stock prices are said to follow a "random walk with a trend," which means that the daily movements in stock prices are unpredictable as they respond to new information, but over time, there tends to be an upward trend reflecting the growth of the economy and businesses. Another related concept is the rational expectations theory, which states that individuals make forecasts based on available information and act accordingly, potentially affecting asset prices such as real estate when future improvements are anticipated.
Thus, the correct answer to the question 'The efficient market hypothesis implies that:' is d. current prices reflect all useful information.