What does it mean that the stock market is efficient? What makes the stock market efficient?

Expert Solution

That the stock market is efficient, means that all stocks in the market are "correctly priced", i.e. no stock is overpriced or underpriced. All stocks reflect all the information relating to them, and thus they are always priced correctly at their fair value. This means that in an efficient market, no investor can earn an excess risk-adjusted return, i.e. no investor can beat the market.

The stock market is made efficient by transparent flow of information, information symmetry, good/fair regulation, and well-functioning financial intermediaries.

jeff jeffy answered 2 years ago

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What does it mean that the stock market is efficient? What makes the stock market efficient?

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