PLEASE NOTE
Capital Ideas is now Chicago Booth Review but unfortunately original articles are no longer available. If you click through you will be taken to the Internet Archive site to find an archived copy.
Capital Ideas is now Chicago Booth Review but unfortunately original articles are no longer available. If you click through you will be taken to the Internet Archive site to find an archived copy.
In 1970, in “Efficient Capital Markets: a Review of Theory and Empirical Work,” Gene Fama defined a market to be “informationally efficient” if prices at each moment incorporate all available information about future values. Informational efficiency is a natural consequence of competition, relatively free entry, and low costs of information. If there is a signal, not incorporated in market prices, that future values will be high, competitive traders will buy on that signal. In doing so, they bid the price up, until it fully reflects the information in the signal. Much of the confusion about “efficiency” reflects simple ignorance of this definition.
Related Content
- Benoit Mandelbrot Critiques the “Efficient Markets” Hypothesis
[Archive.org URL] - Binyamin Appelbaum [Archive.org URL]
- Chris Bradley [Archive.org URL]
- Daniel Gross [Archive.org URL]
- Do Fundamentals—or Emotions—Drive the Stock Market? [Archive.org URL]
- How to Fix a Broken Marketplace [Archive.org URL]
- John H. Cochrane [Archive.org URL]
- Joseph Stiglitz on What Business Schools Teach That’s Wrong [Archive.org URL]
- Tim O’Reilly [Archive.org URL]
Like this content? Why not share it?
There Are No Comments
Click to Add the First »
Click to Add the First »