The Market Efficiency – 35 years after Fama

Abstract

In this article I provide the definition of market efficiency in its broadest spectrum. Instead of surveying the vast literature on where the actual market conforms to the prediction of the finance theory and where it does not, I explore the conceptual issues surrounding the idea of efficient markets and give corrections to some common misunderstanding of the efficient market hypothesis. I also clarify how the notion of market efficiency is related to the standard model of asset pricing and point out the weakness of the current theory in explaining the operation of actual markets.