The Rational Market Theory

The Rational Market Theory suggests that financial markets are efficient because all available information is instantly reflected in asset prices. Investors analyze data and economic indicators, making decisions that collectively drive prices to their true value. As a result, it's nearly impossible to consistently outperform the market, since prices already incorporate all known information. This theory assumes rational behavior and perfect information flow, meaning markets tend to self-correct and remain fair over time. In essence, it portrays markets as rational and efficient, making them unpredictable for those trying to find undervalued or overvalued assets.