Fama (1970) defined an efficient market as one in which prices always ’fully reflect’ available information. This paper formalizes this definition and provides various characterizations relating to equilibrium models, profitable trading strategies, and equivalent martingale measures. These various characterizations facilitate new insights and theorems relating to efficient markets. In particula...

a r t i c l e i n f o We analyze the market efficiency of 25 commodity futures across various groups—metals, energies, soft commodities , grains and other agricultural commodities. To do so, we utilize the recently proposed Efficiency Index to find out that the most efficient among all of the analyzed commodities is heating oil, closely followed by WTI crude oil, cotton, wheat, and coffee. On t...

J. Doyne Farmer, 2 Austin Gerig, 1 Fabrizio Lillo, 4 and Henri Waelbroeck 1Santa Fe Institute, 1399 Hyde Park Road, Santa Fe, NM 87501 2LUISS Guido Carli, Viale Pola 12, 00198, Roma, Italy 3School of Finance and Economics, University of Technology, Sydney, Broadway, New South Wales 2007, Australia 4Dipartimento di Fisica e Tecnologie Relative, viale delle Scienze I-90128, Palermo, Italy 5Pipeli...

We investigate whether stock markets efficiently price risks brought on or exacerbated by climate change. We focus on drought, the most damaging natural disaster for crops and food-company cash flows. We show that prolonged drought in a country, measured by the Palmer Drought Severity Index (PDSI) from climate studies, forecasts both poor stock returns and profitability ratios for food companie...

This study examines whether patent citation impact, a leading indicator of technology firms’ innovation capabilities, is associated with future earnings and whether this association is appropriately reflected in stock prices and analysts’ earnings forecasts of patent-rich companies. The results indicate that change of patent citation impact is positively associated with future earnings, particu...

T paper develops the first operational tests of portfolio efficiency based on the general stochastic dominance (SD) criteria that account for an infinite set of diversification strategies. The main insight is to preserve the cross-sectional dependence of asset returns when forming portfolios by reexpressing the SD criteria in T -dimensional Euclidean space, with elements representing rates of r...