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The market efficiency hypothesis means securities are traded at their fair price.

If the market is at the equilibrium, does it mean the market is efficiency?

If equilibrium cannot implies efficiency, why was that? As the equilibrium price should be achieved by supply and demand, why the price is not the fair price?

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  • $\begingroup$ I knew it but this is not a question for our real market. It is theoretical question about these two concepts/ $\endgroup$ – HAHAHA Aug 18 '15 at 21:52
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Market is efficient when all available public information gets priced-in relatively fast by market participants. This yields the fair price. Efficiency depends on the speed of the information dissemination. Equilibrium is a balance between supply and demand, which can be skewed by short term liquidity issues. So market can be efficient and not in equilibrium at the same time.

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  • $\begingroup$ If the equilibrium price is right in a frictionless market, will the price be the same as the price in the efficient market? sry, still a little confused. $\endgroup$ – HAHAHA Aug 20 '15 at 11:10
  • $\begingroup$ frictionless does not eliminate liquidity issues. i would say even liquid frictionless market can be inefficient. processing of information by market participants is the key. $\endgroup$ – Wisentgenus Aug 23 '15 at 5:10
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Read paper written by Malkiel, "The Efficient Market Hypothesis and Its Critics". It is wonderful paper on EMH.

http://eml.berkeley.edu/~craine/EconH195/Fall_14/webpage/Malkiel_Efficient%20Mkts.pdf

It will help you to gain conceptual clarity in EMH.

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The answer to your question depends on the type of equilibrium. In a perfect information rational expectations equilibrium with preferences that assume that agents always prefer more money to less, the equilibrium is efficient with respect to the information. If you introduce biases in preferences or different information sets (differing ability to interpret information, different access to information, etc.) then an equilibrium does not have to be efficient. This is mainly due to the fact that it is not quite obvious with respect to which information prices should be efficient. Also, differing transaction costs or differences in attention to markets, liquidity effects, sun spots, and other market frictions often result in models in which equilibria do not (necessarily) imply efficiency.

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