Questions tagged [efficient-markets]

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Optimizing Lagrangian Function Subject to 4 Input/Output Constraints:

The objective function: $$\text{utility}=U\left(x_{c}, y_{c}\right)$$ subject to, $x_{o}=f\left(y_{i}\right)$ $y_{o}=g\left(x_{i}, x_{o}\right)$ $x_{c}+x_{i}=x_{o}+x^{*}$ $y_{c}+y_{i}=y_{o}+y^{*}$ ...
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3answers
42 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 ...
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2answers
57 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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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 ...
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24 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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25 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
114 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 "semi-strong" ...
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44 views

Production technology and efficiency

I have been practicing some questions on production function and efficiency and I came across the following questions. For question 1 what I did is, the efficiency of firm A in q1 = production of ...
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22 views

What are the effects of an insurance policy that partially covers medical treatment on several market properties?

Question: Consider an insurance policy that pays 50% of the price for a medical treatment. Assuming that the market price equals marginal cost, what effect does the insurance policy have on the ...
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1answer
23 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 ...
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1answer
53 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
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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 ...
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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 ...
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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 ...
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32 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. ...
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83 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-...
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58 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 ...
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3answers
842 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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823 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. ...
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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 ...
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3answers
273 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. ...
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2answers
193 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 ...
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1answer
105 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. ...
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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 ...
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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 ...
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1answer
562 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 ...
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1answer
174 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 ...
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1answer
557 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
474 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
3k views

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 ...
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1answer
82 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 ...
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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 ...
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110 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
207 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?
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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 ...
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3answers
281 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
1k 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 ...
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3answers
335 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
1k views

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 ...