Skip to content

Do you think markets are efficient

Question

Do you personally believe that financial markets are efficient? Explain your position.

Short answer

Take a nuanced position. Markets are broadly efficient in that public information is priced quickly and consistent outperformance after costs is rare, but anomalies, behavioural biases, limits to arbitrage and frictions leave occasional opportunities, which is what active traders exploit. Supporting your view with evidence matters more than which side you pick.

Adapted from Crack, Heard on the Street, Q5.3.7, p.50; question and answer rewritten by SelfMadeQuant.com.

See the hint and the full worked solution in the question bank (free account).

Open the worked solution