Question

If you were a stock trader and markets were not efficient, how would this influence your trading activity? What does this tell you about why markets may be efficient?

Answer 1

Market Inefficiency is bad for trading and market as a whole. Some of the major disadvantages are –
-The traders will lose more money and that too quickly
-An inefficient market always run on a speculative bubble that act like a ticking time bomb ready to crash.
-An inefficient market tends to have price mismatch due to ambiguity in demand and supply.
-the information flow in the market is delayed and unreliable that severely hamper effective decision making.
It is important to have market efficiency so that there is fair play in the market. Market efficiency keeps the trading up and running and maintains liquidity in the market. It also instils investors’ confidence on the market.