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A Simple Proof That Futures Markets are Almost Always Informationally Inefficient

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  • Ian Gale
  • Joseph Stiglitz

Abstract

Previous work which showed that prices could aggregate perfectly the diverse information of traders depended critically on the assumption that all agents had constant absolute risk utility. We show that either all agents must have constant absolute risk aversion utility, or all must have constant relative aversion in order for the strong form of the efficient market hypothesis to hold generically.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3209.

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Date of creation: Dec 1989
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Handle: RePEc:nbr:nberwo:3209

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Cited by:
  1. Coffinet, J., 2008. "La prévision des taux d’intérêt à partir de contrats futures : l’apport de variables économiques et financières," Working papers 193, Banque de France.
  2. Bruce C. Greenwald & Joseph E. Stiglitz, 1991. "Information, Finance, and Markets: The Architecture of Allocative Mechanisms," NBER Working Papers 3652, National Bureau of Economic Research, Inc.

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