Question

Briefly explain what is meant by the term efficiency continuum.

Answer 1

Efficiency Continuum means some markets being highly efficient and some being highly inefficient. It can also mean that within the same market, some companies’ stocks being highly efficient and other stocks being highly inefficient and others lie in between. There are no distinct level of efficiencies and there is a continuous decrease in the level of efficiency based on certain factors. The lower the information and trading costs, the more efficient the market. In developed countries, reliable information about firms is relatively cheap to obtain and trading is relatively cheap due to which these markets are relatively efficient.