The Mechanisms of Derivatives Market Efficiency

In their influential 1984 article The Mechanisms of Market Efficiency[1], Ron Gilson and Reinier Kraakman put forward a causal framework for understanding how new information becomes incorporated into the price of publicly-traded equity securities. This framework was grounded in the observation that the efficiency of public equity markets is a function of the market for information: how costly it is to acquire, process, and verify and, accordingly, its distribution within the marketplace. For any initial distribution of information, this framework then offered an account of how the trading activities of one or more species of market participants serve … Read more