Informationally Efficient Market

An informationally efficient market is a market for goods and/or services where all currently available information is priced into the good and/or service.

For instance, most goods aren’t in informationally efficient markets. Rather, most goods are “sticky” in their pricing, meaning they don’t change in response to every little piece of information.

Something like stocks though are the perfect example of informationally efficient markets. One wrong tweet can send investors into a flurry, causing stock prices to radically drop or rise in response. Likewise, smaller info-bombs regarding companies can result in smaller changes in their stock’s price.

Related or Semi-related Video

Finance: What is Efficient Markets Theor...141 Views

00:02

Finance a la shmoop what is the efficient markets theory well

00:08

there should just be a big picture of Warren Buffett right here it should be [Two men carrying a framed picture of Warren Buffett]

00:12

the man Warren explaining the efficient market theory himself and that theory

00:17

states that it's impossible to beat the market over a sustained period of time

00:21

it should be Warren Buffett who explains that all relevant information comes [Warren Buffett giving a presentation on stage]

00:25

public in public stocks and that the market more or less immediately

00:29

incorporates all that information in its pricing

00:32

hence nobody can ever beat the market over a long period of time so why should [Men falling asleep during a presentation]

00:38

Warren Buffett be giving this little definition because the efficient market

00:43

theory is wrong Buffett has beaten the market for decades in a row in every way [Warren Buffett beating up the market with a stick]

00:50

shape and form so you have a really memorable huge figure in finance this

00:55

guy and then pipsqueak professors who are kind of a laughing stock whenever the [Professor jumping on the microphone stand trying to talk]

01:00

wealthy power crowds gather in Omaha for their National Convention that's what

01:04

they say at the Woodstock of Finance if you will fortunately most people keep [Man with arms folded standing naked in a corridor]

01:08

their clothes on for this one

Find other enlightening terms in Shmoop Finance Genius Bar(f)