2018, Vol. 1, Issue 1

The concept of informational efficiency suggests that the more efficient the market, the more random the sequence of price changes generated by such a market, and the most efficient market of all is one in which price changes are completely random and unpredictable. This is not an accident of Nature, but is in fact the direct result of many active market participants attempting to profit from their information. Driven by profit opportunities, a myriad of investors pounce on even the smallest informational advantages at their disposal and in doing so; they incorporate their information into market prices and quickly eliminate the profit opportunities that first motivated their trades. If this occurs instantaneously, which it must in an “idealized world of frictionless" markets and costless trading, then prices must always fully reflect all the available information. Therefore, no profits can be from information-based trading because such profits must have already been captured.