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The efficient market hypothesis when time travel is possible

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  • Gans, Joshua S.

Abstract

This paper extends the Efficient Markets Hypothesis (EMH) into a novel setting in which traders can travel back in time to exploit future information. We consider a fully specified trading model with risk-neutral, rational investors and a single, infinitely-lived asset. Agents can, at a fixed cost, build time machines, travel to the past, and trade using knowledge of future dividends and prices. Under a self-consistent, single-timeline theory of time travel, we show that no arbitrage opportunities can persist. In equilibrium, the asset price fully reflects not only all current and past information but also all future information that could have been acted upon by backward-travelling arbitrageurs. We state and prove an Extended Efficient Markets Hypothesis (EEMH), showing that time travel does not undermine but rather reinforces the no-arbitrage conditions at the heart of the EMH. We conclude by discussing the relevance of known constraints on the EMH, alternative theories of time travel and the challenges of empirically identifying time-travelling traders. Journal of Economic Literature Codes: G14, Z10.

Suggested Citation

  • Gans, Joshua S., 2025. "The efficient market hypothesis when time travel is possible," Economics Letters, Elsevier, vol. 248(C).
    • Handle: RePEc:eee:ecolet:v:248:y:2025:i:c:s0165176525000461
    DOI: 10.1016/j.econlet.2025.112209
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    References listed on IDEAS

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    1. Shleifer, Andrei & Vishny, Robert W, 1997. "The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March.
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    4. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    5. Glosten, Lawrence R. & Milgrom, Paul R., 1985. "Bid, ask and transaction prices in a specialist market with heterogeneously informed traders," Journal of Financial Economics, Elsevier, vol. 14(1), pages 71-100, March.
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    More about this item

    Keywords

    Time travel; Efficient market hypothesis; Single timeline; No-arbitrage condition; Preemption;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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