Market Efficiency

Markets are said to be efficient if the market price is an unbiased estimate of the true value of the investment. It means imagesthat 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”