Questions tagged [efficient-markets]
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Why do different product-markets record different rates of return if the assumption of competitive markets hold?
I'm a new economics student, and have become fascinated by the field of Industrial Organization. To that end, I'm reading through the Carlton and Perloff Modern Industrial Organization text book. In ...
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37 views
Books that examine efficient markets from first principles?
I hope to deeply investigate the philosophical underpinnings of efficient markets and answer questions such as: 1) under what conditions do free markets exist, 2) when do markets deviate from ...
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11 views
Is it correct that no portfolio can be more efficient than the market portfolio?
I'm reading Finance for Executives, Sixth Edition, by Gabriel Hawawini and Claude Viallet, chapter 3.
Here they state the following (my emphasis):
"The market portfolio contains all assets in ...
1
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1answer
21 views
Premises on which the Efficient Market Hypothesis is built upon
The Efficient Market Hypothesis tells us that stocks are "fairly priced" (i.e. not systematically over- or under-valued). That is, stock prices reflect all information that is already known about them....
0
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1answer
31 views
Does ownership determine efficiency in an economic system?
what determines efficiency in an economic system?
a) ownership
b) competition
c)both
d) none
I am confused between option (C) and option (B) because I am not sure about whether ownership can be said ...
0
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1answer
24 views
Optimizing Lagrangian Function Subject to 4 Input/Output Constraints:
The objective function:
$$\text{utility}=U\left(x_{c}, y_{c}\right)$$
subject to,
$x_{o}=f\left(y_{i}\right)$
$y_{o}=g\left(x_{i}, x_{o}\right)$
$x_{c}+x_{i}=x_{o}+x^{*}$
$y_{c}+y_{i}=y_{o}+y^{*}$
...
1
vote
3answers
52 views
Model of economic cycles consistent with efficient market hypothesis
I do not have background in economics, so my question may be naive or I might have taken incorrect assumptions somewhere. As far as I understand, efficient market hypothesis applies, saying that the ...
0
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2answers
147 views
EMH: Difference between market price and fundamental value?
I am confused by the relation between stocks market prices and fundamental (or intrinsic) values stated by Efficient Market Hypothesis. How these deviates regarding to efficient market theory or are ...
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0answers
22 views
A problem: allocation of apartments
Setup: Trine owns an apartment in Copenhagen. She is willing to rent
it out at any positive price. Peter and Simon
lives together and are both students. They will like to rent the apartment for less ...
0
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0answers
27 views
Why hipothesis of perfect competition market implies fixed price of a product in every transaction?
My book says that from the axioms of perfect competition follows that the price is fixed in every transaction but it doesn't specify in which way it is possible to prove it. Besides, are all the ...
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26 views
Fama's Definition of Market Efficiency
I'm reading Fama's Nobel lecture "Two Pillars in Asset Pricing" and I'm a little confused by his mathematical definition of market efficiency. Here it is below:
Suppose time is discrete, and $P_{t+...
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2answers
121 views
Doesn't the semi-strong form of the EMH conflict with expecting stock indices to increase in the long run?
I willfully don't define "long run", as I'm certain you economists can do this better! Please edify me on a reasonable number, and I can edit this post.
I quote Malkiel's definition of &...
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1answer
26 views
How exactly does removing labor market rigidities reduce structural unemployment and increase potential output in an economy?
Here I want to focus primarily on the potential benefits of labor market reforms such as a reduction in job security and trade union power and not their controversies. I wish to learn a few thoroughly ...
4
votes
2answers
86 views
Does the Efficient Market Hypothesis Solve the Tragedy of the Commons?
My layman understanding of the Efficient Market Hypothesis is that there is so much brain power focused on the maximization of profit in the marketplace, that the market will find the best solution ...
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1answer
36 views
How does “Survival of the Fittest” result in Rosetta Stone's economic success?
I would briefly comment that Rosetta Stone has a terrible reputation among language lovers (see sample review about why most people can't learn like they did as a child), and some language lovers ...
0
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2answers
37 views
How can markets can be highly efficient, even if they make errors?
A Random Walk Down Wall Street (2015 11 ed, but an 2019 ed. is upcoming). p. 105 Middle.
$\color{red}{\text{Markets can be highly efficient even if they make errors.}}$ Some are doozies, as when ...
0
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1answer
72 views
Is there an economic theory that explains what happens when a market is saturated with a precious resource?
The theoretical situation is this. What if a record breaking amount of platinum were discovered. What would happen to the economies that use, store, and/or produce platinum?
I would like to apply ...
0
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1answer
33 views
Do the efficiency savings of mergers indicate a type of waste or inefficiency in a market?
In this BBC News article about the merger of Tata Steel and Thyssenkrupp, the following figure is reported:
The merged group anticipates it will make costs savings of between £350m to £440m a year.
...
5
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0answers
86 views
Auction mechanism with no trusted third-party
I have been using a double-auction mechanism to solve a two-sided market where multiple agents are competing to supply/use slices of a shared resource. The owner of the resource is a trustable third-...
3
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0answers
61 views
Market efficiency in software, music, news, etc
I'm not an ecomonist, but have been tossing around some ideas in my head for a long time and thought I might ask here what resources or existing work might be out there.
There are a lot of market ...
5
votes
3answers
1k views
What is the exact relationship between the efficient-market and random-walk hypotheses?
The efficient-market and random-walk hypotheses are often discussed together as formalizations of the idea that "you can't consistently beat the stock market". But in my experience, they're often used ...
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1answer
966 views
Is the convexity of production sets necessary for the welfare theorems?
I have read that the convexity of production sets (for instance non-increasing returns to scale) is not a necessary assumption for the first welfare theorem but it is for the second welfare theorem. ...
5
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0answers
44 views
Letting clients/guest reserve their space vs keeping space clear so that it is available for people who really need it at the moment
Everybody knows that moment when you are in search for a beach lounger but everything is covered by towels, yet the people who placed them there are untraceable, often back at the hotel or in the town ...
3
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3answers
303 views
Does my research prove market inefficiency?
The long story short, I have developed an index based on a certain distribution. Then I aligned NYSE stocks according to this index i.e. the stocks with the best fit are first and the worst are last. ...
3
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2answers
203 views
Adam Smith and wage gap?
Recently I was reading up on Adam Smith's economic philosophy of competition (i.e self interest) and division of labor.
While I understand (and agree) with Smith's commentary that free markets and ...
4
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1answer
108 views
Is there a comprehensive list of all market failures ever discovered?
I'm looking for a complete run down of all different kinds of market failures;
Wikipedia has a list but I'm not sure if there might some obscure kinds of market failures that Wikipedia is missing. ...
4
votes
2answers
2k views
Is market failure the same allocative inefficiency?
From an IB Economics book (in the microeconomics section):
The part in blue suggests market failure is the same as allocative inefficiency, but the part in red seems to suggest that market failure is ...
2
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0answers
44 views
Demonstrating that markets yield productive and allocative efficiency to introductory students
Has anybody come across a nice, intuitive (i.e. neither formal nor technical) way to demonstrate how markets yield both productive and allocative efficiency?
I suppose the allocative argument ...
0
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1answer
611 views
Contract curve for firms with linear utility functions
I am attempting to find a contract curve for a production economy with two linear utility functions.
Normally, I would find the point where the Marginal Rate of Technical Substitution were equal for ...
2
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1answer
179 views
Does a perfectly price discriminating natural monopoly cause externalities or any type of market failure?
In perfect price discrimination, all mutually beneficial trades take place, the natural monopoly captures 100% of the surplus, and pareto efficiency is achieved.
However, I've read various sources ...
2
votes
1answer
574 views
Under what conditions does market failure occur?
Edit: Is it possible to broadly categorize the ways in which market failures occur into relatively few categories? If so, what are they?
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2answers
505 views
Is trading in the commodity futures much more riskier than trading in stock market futures?
My understanding is that the price of a stock at the stock exchange is determined by supply demand mechanics during trading hours, and the price of futures is determined by the price of the underlying ...
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4answers
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Is market failure constant? What properly defines it?
My textbook defines market failure as when "the production or consumption of a good or service causes additional positive or negative externalities on a third party not involved in the economic ...
5
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1answer
85 views
How long does it take for shocks to propagate through the price system / market?
Has anyone calculated or theorized about how long it takes prices to come to some kind of equilibrium after a market shock has happened? How has this changed over time?
An example might be a spike in ...
7
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3answers
1k views
'No arbitrage' vs 'Efficient market'
I am trying to wrap my head around the 'no arbitrage' (NA) and 'efficient market' (EM) assumptions, in particular their difference.
Please correct me if I am wrong, but NA just claims that there is ...
0
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1answer
120 views
Why do all apartment complexes in Albuquerque have pools?
Apartment builders have a constrained optimization problem whereby they balance building different amenities to attract tenants with varying preferences. Recently when searching for apartments I ...
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2answers
220 views
What possible reasons could make arbitrage impossible between some markets?
What could prevent arbitrage (not necessarily risk-free) between some markets even when price differences exist?
3
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1answer
52 views
What would be the results of improved goods manufacturing efficiency?
Improved manufacturing efficiency could cause price reduction of goods, increase manufacturer's profit (still asks for the same price, but has less expenses), and what else? Is it possible to predict ...
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1answer
73 views
Where is GBP/EUR exchange rate going? [closed]
Very recently, the GBP has been raising against the Euro. I understand this has to do with the EU injecting €1.1 trillion until Sep 2016 and the elections in Greece.
My question is: when is this ...
3
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3answers
368 views
Market Behavior under expected and unexpected news
I found the following text in the paper "Real-time Price Discovery in Foreign Exchange"
The general pattern is one of very quick exchange rate conditional mean adjustment, characterized by a jump ...
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1answer
2k views
Marginal buyer/seller as determinant of price
In competitive markets without frictions, the marginal buyer/seller determine the price. To what extent is this argument true in markets where a fraction of the sellers are constrained?
Think about ...
4
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3answers
357 views
Is technical analysis somehow a valid method for investment? [closed]
I personally think technical analysis (TA) is not useful at all but I still see lot of courses about technical analysis, and even people using it. They have the advantage of being easy to learn and ...
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5answers
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What are the arguments against the rational expectations hypothesis?
I believe the rational expectations hypothesis says that agents in a model bear expectations that are the same as mathematical expectations.
Under what circumstances does this hypothesis become ...
