Market Efficiency

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Recap: Forms of Market Efficiency

Allocational Efficiency

Informational Efficiency

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Rate these markets from most to least (allocationally) efficient.

NYSE Labor Market Treasury Bill market FX market (High trade volume currency) Local groceries

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The Efficient Market Hypothesis

How does this fit in the picture? all securities will be priced fairly, based on their E[CF], given all information that is available

competition?

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Types of informational efficiency

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The EMH and forecasting (pros)

90% of fx analysts believe in technical analysis
In direct conflict with weak form efficiency

Inefficient FX markets

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Arbitrage in an efficient market

Impossible to do so structurally The short term FX markets follow a random walk model
Drunkard in a corn field

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