“Priced In”: The Circular Faith of the Efficient Market Hypothesis

The Efficient Market Hypothesis (EMH) is one of those ideas that sounds powerful and scientific—until you try to pin down what it's actually saying.

At its core, EMH claims that asset prices always reflect all available information. No one can consistently “beat the market,” because whatever you know, the market already knows. Seems tidy enough. But tug at it a little, and something slippery starts to emerge.

🧠 “Priced In”: The Floating Signifier

Central to EMH is the idea that information is always “priced in.” But what does that mean?

If new information emerges—say, a company announces a breakthrough or a scandal—the market responds. If the stock price moves, we say: “Ah, the market has priced it in.” But here’s the catch: if the price doesn’t move, we might also say: “Well, the market had already priced it in.”

Either way, the theory wins. It explains everything—and therefore, nothing.

This isn’t just a rhetorical flaw; it’s a logical one. “Pricing in” becomes a kind of tautology:

If it affected the price, it was information.If it didn’t, it wasn’t—or was already accounted for.

That makes EMH immune to contradiction, but also immune to usefulness.

🔁 The Circular Trap: Information Is What Moves Prices

Here’s where the muddle deepens.

Under semi-strong and strong forms of EMH, “information” is not limited to company fundamentals or macroeconomic data. It includes:

• Investor sentiment

• Rumors

• Trends

• Tweets

• Collective mood

This leads to a strange inversion of causality:

Instead of saying “information drives prices,”the theory often acts as if “whatever drives prices is, by definition, information.”

That collapses the distinction between signal and noise.

If a stock soars because of a viral TikTok meme, EMH says: That meme must’ve been information.If a CEO stumbles over their words on an earnings call and the market panics, EMH says: The stumble was meaningful.If a mass hallucination occurs, the theory doesn’t blink—it calls it priced in.

🪞 But What Is the “Right” Price?

This problem is especially glaring when we compare stocks to goods with intrinsic utility—say, wheat or copper. Those commodities are anchored in physical necessity. A “wrong” price causes actual scarcity or surplus.

But a stock? A stock is a claim on an imagined future. It has no intrinsic “use,” only expectations.

In that way, stocks are more like luxury goods than commodities. Their price depends on mood, narrative, and belief. And EMH tries to call all of that “information”—no matter how whimsical, irrational, or fleeting.

That might make EMH descriptive in a loose, sociological way. But it robs the theory of its normative or predictive power. It doesn’t help us distinguish market wisdom from market madness. It just re-labels both as “efficient.”

🧨 So What’s Left?

Ironically, EMH ends up being a theology of price—not a theory of value.

It invites you to trust the market because everything is priced in, and everything that’s priced in is valid. In doing so, it confuses:

• Knowledge with movement

• Rationality with reaction

• Truth with trend

And it turns “pricing in” from a useful heuristic into a circular article of faith.

Final Thought

If we want to understand markets—not just model them—we have to do better than this. We have to recover the distinction between signal and noise, between insight and inertia, and between value and fashion.

Until then, we’re just watching prices go up and down, telling ourselves it’s all information.