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| Efficient Markets Hypothesis |
 | | The EMH assumes that markets consist of many rational, homogenous, autonomous traders and states that you cannot beat the market. |
 | | Grossman (1976) and Grossman and Stiglitz (1980) argue that perfectly informationally efficient markets are an impossibility, for if markets are perfectly efficient, the return to gathering information is nil, in which case there would be little reason to trade and markets would eventually collapse. |
 | | Alternatively, the degree of market inefficiency determines the effort investors are willing to expend to gather and trade on information, hence a non-degenerate market equilibrium will arise only when there are sufficient profit opportunities, i.e., inefficiencies, to compensate investors for the costs of trading and information-gathering. |
| www.e-m-h.org (993 words) |
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