Business and Personal Finance Dictionary

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• MARKET EFFICIENCY HYPOTHESES
  
  Refer to theories which try to explain financial market behavior. Some hypotheses state that the markets are rigorously efficient and operate by an immediate discounting of perfect information. Other theories state that the markets are relatively inefficient, particularly when socially-oriented goals are also to be considered. Other hypotheses state that information is good or even very good but not perfect. Also, not all market participants believe or simultaneously act on new data or information. The latter theorists believe that the markets try to attain pure efficiency. However, they also recognize that competition breeds asymmetrical change and this influences the discounting and adaption processes. A simple example will highlight this view. While improvements in technology are reducing costs and communication times, not everyone updates their systems given each and every change in chip speeds and processing power. To do so would be too expensive and this creates one of example of a marketplace paradox.
  
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