Resolved: Efficient Markets vs. Inefficent Markets
You said that inefficient markets allow money-making due to mispricings. Then while discussing the factors that affect efficieny of a market you said, "that more participants make markets more efficient and there's a highly likely chance to find mispricings." Isn't it contradictory?
1 answers ( 1 marked as helpful)
Hello Indrajeet,
Thanks for reaching out and sorry for the misunderstanding.
When we say that more participants make markets more efficient, we mean that with more informed traders, analysts, and institutions actively watching and trading securities, prices tend to reflect available information more quickly and accurately. That reduces the frequency, size, and duration of mispricings.
However, "more efficient" doesn't mean "perfect." Even in highly efficient markets, mispricings can still occur—but they are typically smaller and corrected more quickly. The presence of many participants increases the likelihood of identifying and correcting these mispricings, not their frequency.
Hope this clarifies the misunderstanding.
Kind regards,
The 365 Team
Thanks for reaching out and sorry for the misunderstanding.
When we say that more participants make markets more efficient, we mean that with more informed traders, analysts, and institutions actively watching and trading securities, prices tend to reflect available information more quickly and accurately. That reduces the frequency, size, and duration of mispricings.
However, "more efficient" doesn't mean "perfect." Even in highly efficient markets, mispricings can still occur—but they are typically smaller and corrected more quickly. The presence of many participants increases the likelihood of identifying and correcting these mispricings, not their frequency.
Hope this clarifies the misunderstanding.
Kind regards,
The 365 Team
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