Which statement is NOT an assumption of the Efficient Market Hypothesis (EMH)?

The Efficient Market Hypothesis (EMH) is built on several key assumptions about how financial markets operate, particularly the behavior of investors and how information is reflected in asset prices.

One of the core assumptions of EMH is that investors are rational; they analyze available information thoroughly and make decisions that optimize their expected outcomes. This rational behavior implies that individual investors do not let emotions drive their investment decisions. Therefore, the statement that "Investors react emotionally to market changes" contradicts the fundamental premise of the EMH.

Additionally, in EMH, it is assumed that any pricing errors caused by investors are random and not systematic. This randomness ensures that any mispricing is quickly addressed by arbitrageurs—who are assumed to act rationally—in an attempt to profit from price discrepancies. The hypothesis relies on the idea that market efficiency arises from these rational activities, which leads to asset prices that reflect all available information.

Understanding these assumptions is crucial to grasping how EMH provides a framework for analyzing market behavior and asset pricing.