Rational Markets

Rational markets are based on the idea that financial markets efficiently incorporate all available information into asset prices. This means investors analyze data, news, and trends to make informed decisions, so stock prices reflect their true value at any given moment. In such markets, prices are believed to adjust quickly to new information, reducing opportunities for consistently earning above-average returns through speculation. While no market is perfectly rational, the concept assumes that collective investor behavior tends toward accuracy and efficiency, aligning prices with the fundamental worth of assets over time.