MARKET EFFICIENCY

Peter Joakim Westerholm

Chapter 10 in Lecture Notes in Market Microstructure and Trading, 2019, pp 149-170 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Introduction to Market EfficiencyAn Efficient Capital Market is a market where security prices reflect all available information.In an efficient market, the expected price of a tradable asset, given the information φ available to the market and the information φk available to any investor k, equals the expected price based on the information available to the market for all investors k:The price of the asset reflects the consensus evaluation of the market based on the information available to the market, regardless of private information held by investor k.Individual k's information set φk does not improve his estimate of expected price in an efficient market; the market price already reflects all relevant information φ including investor k's special information φk.In a perfectly efficient market where security prices fully reflect all available information, all security transactions will have zero net present value.

Keywords: Trading; Securities Markets; Priced Discovery; Liquidity; Microstructure; Investments (search for similar items in EconPapers)
JEL-codes: F10 (search for similar items in EconPapers)
Date: 2019
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