Verified answer

The efficient market theory says that if everyone is trying to beat the average, they become the average. This is also related to the "random walk" theory.

The reason you are stuck, is because, despite the hundred weight of academic paper on the subject, markets are not really efficient. Markets are emotion driven, and only ever hit true efficiency as it blows past in either direction.

Theoretically, markets should be efficient because everyone should have the same information, and therefore will make the same judgements about the real values of any given company on any given day. This will drive the auction process, which is the market, to a consensus price, which will be the most efficient.

Unfortunately humans are fallible, and do things for no reason, they buy on rumour. They sell because they need the money, not because it is time to sell. They hold a falling stock in the belief that if they hold on long enough, it will eventually come back up. Nortel anyone?

I am sure however that your instructors want answers which are aligned with the subject in your text, and not the messy creature which is reality.