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What do we know about informational efficiency? Three puzzles and the new direction forward

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  • You‐How Go
  • Wee‐Yeap Lau

Abstract

Informational efficiency generally indicates the prevailing market price of assets by focusing on the connection between market participants in reacting to the arrival of new information. However, several authors have suggested that uncorrelated trading strategies across markets are meant for traders who genuinely know the best. Our study aims to survey the most recent literature on informational efficiency. We examine the empirical literature on informational efficiency by discussing the findings from dual perspectives, namely price–volume and spot–futures relations. More research needs to be directed toward understanding how market efficiency responds to impending uncertainties in the real economy. By combining the findings of 109 studies from different financial markets, we discuss essential lessons from market microstructures and behavioral biases in decision‐making. Further, we identify three contentious issues yet to be explored in the literature. This study concludes by discussing a new direction for future research.

Suggested Citation

  • You‐How Go & Wee‐Yeap Lau, 2023. "What do we know about informational efficiency? Three puzzles and the new direction forward," Journal of Economic Surveys, Wiley Blackwell, vol. 37(4), pages 1489-1525, September.
    • Handle: RePEc:bla:jecsur:v:37:y:2023:i:4:p:1489-1525
    DOI: 10.1111/joes.12478
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