Markets are said to be efficient if the market price is an unbiased estimate of the true value of the investment. It means that a market that is over pricing all assets has become inefficient. Market efficiency can go up or down from time to time. An efficient capital market has the following features:
- Operational efficiency– low transaction cost and transaction should be quickly completed.
- Pricing efficiency: prices should fully and fairly reflect all information.
- Allocational efficiency: capital market through the medium of pricing efficiency allocates the funds where they are best used.
There are three different levels or forms of efficiency. Continue reading “Market Efficiency”