What characterizes an "efficient" market?

An "efficient" market is characterized by the rapid adjustment of asset prices to reflect all available information. This means that deviations from the true or fair value of an asset are short-lived, as new information is quickly absorbed by investors, leading to immediate changes in prices. The principle behind market efficiency is that if a market is truly efficient, no investor can consistently achieve returns that exceed average market returns on a risk-adjusted basis because all relevant information is already factored into the prices.

In this context, the focus is on how efficiently prices adjust to reflect new information and the concept that any mispricing will be quickly corrected as market participants act on the information available to them. This characteristic is fundamental to the Efficient Market Hypothesis (EMH), which proposes that it is impossible to "beat the market" consistently due to the rapid dissemination and incorporation of information into asset prices.