Center for Economic Research, Department of Economics, University of Minnesota
Economic theorists have interpreted the "efficient markets hypothesis" to
assert that equilibrium asset prices reveal all decision-relevant information
in the market. This paper establishes conditions on investors' utility functions
of future wealth which are necessary for the efficient markets hypothesis to be
satisfied and be robust to slight perturbations of endowments and the joint
distribution of current information and future asset values. The main result
states that over the relevant range of future wealth values, there are three
possible cases: (i) all investors are risk-neutral; (ii) modulo a change in the
wealth origin, each investor has constant relative risk aversion with the same
constant for all investors; or (iii) all investors have constant absolute risk
Jordan, J.S., (1982), "On the Efficient Markets Hypothesis", Discussion Paper No. 169, Center for Economic Research, Department of Economics, University of Minnesota.
On the Efficient Markets Hypothesis.
Center for Economic Research, Department of Economics, University of Minnesota.
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