Do equity prices efficiently reflect fundamental information as the Efficient Markets Hypothesis suggests? The author challenges a widely held acceptance by financial academicians of the EMH. In a frictionless environment, information acquisition and trading would be costless, transaction prices...

Adverse selection induces economic limits to market substitution. If quality uncertainty persists in both internet and traditional marketplaces, a second-best equilibrium with parallel market segments may arise. Positive trade in parallel segments implies that the information cost advantage of...

We explore the relation between corporate governance and the informational efficiency of prices (IEP). We find that IEP increases with the quality of corporate governance in a large cross-section of firms. We show that firms with better governance structures file Form 8-K reports more promptly...

Even when participants know very little about their environment, the market, itself, by serving as a selection process of information, promotes an efficient aggregate outcome. To emphasize the role of the market and the importance of natural selection, rather than the strategic actions of...

We derive an equilibrium price that converges to be strong-form informationally efficient in the original Grossman-Stiglitz model (1980). Specifically, we show that when the private signal converges to be perfect or traders converge to be risk neutral, there exists a unique overall equilibrium...

We study the relation between equity market uncertainty and the informational efficiency of U.S. equity prices, proxied by the SPDR S&P 500 Trust ETF. Using the Baker, Bloom, and Davis (2016) equity market uncertainty index, we document a negative relation between market uncertainty and...

We identify a novel economic mechanism through which passive ownership positively affects informational efficiency in the cross-section of firms. Passive ownership lowers the cost of capital, encouraging firms to invest more aggressively in risky growth opportunities. The resultant higher cash...

The ability of option-based measures to predict future stock returns is not a sufficient condition for the existence of incremental information in options. If options markets are informationally more efficient than the stock market, then option measures may be used to predict future actual stock...