What conflict does the Cost of Information Paradox present in the context of Efficient Market Hypothesis (EMH)?

The Cost of Information Paradox highlights a key tension within the framework of the Efficient Market Hypothesis (EMH), which posits that all available information is already reflected in asset prices, rendering markets efficient. According to the paradox, while investors seek information to gain an advantage in the market, the process of acquiring and analyzing this information comes at a cost.

As a result, those who invest significant resources into research and information gathering may not necessarily achieve higher returns compared to the general market. This is because, in an efficient market, any information that could provide an edge is quickly incorporated into asset prices, neutralizing the advantage that information seekers hope to leverage. Therefore, the paradox indicates that despite the efforts made to seek out information, these efforts do not translate into greater returns on investment. This aligns with the idea that the market is efficient; information is already priced in, and thus, individuals may not see the expected increase in returns relative to their investment in information.