We test the information efficiency of the market for SO2 permits in the US. In order to do so, we analyse the price process of these permits using techniques that have been widely used in financial economics. The evidence presented in this paper suggests that this market is efficient from an informational point of view. Although one could question this hypothesis from a statistical point of vie...

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T he battle between proponents of the Efficient Markets Hypothesis and champions of be-havioral finance has never been more pitched, and little consensus exists as to which side is winning or the implications for investment management and consulting. In this article, I review the case for and against the Efficient Markets Hypothesis and describe a new framework—the Adaptive Markets Hypothesis—i...

The Black-Scholes theory, which is the main subject of this course and its sequel, is based on the Efficient Market Hypothesis, that arbitrages (the term will be defined shortly) do not exist in efficient markets. Although this is never completely true in practice, it is a useful basis for pricing theory, and we shall limit our attention (at least for now) to efficient (that is, arbitrage-free)...