Market efficiency is the extent to which the market prices incorporate the available information. Active management, on the other hand, tries to make a profit out of the inefficiencies in the market.
Price efficiency reflects the degree to which the prices of the assets in the markets reflect the available information about them. The price efficiencies provide the price signals that determine where the capital should be allocated to earn the highest risk-adjusted return and avoid mal-investments. This promotes healthy and sound economic growth.
The whole process of market and price efficiency assumes that the information is timely, complete, correct, and understandable. Thus according to theory, the asset prices reflect the new information quickly and rationally, and the prices incorporate all past and present information. Therefore, in an efficient market, consistent, superior, and risk-adjusted returns are not achievable. Thus the passive returns are always higher than the active return, according to the efficient market hypothesis.