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Consensus Beliefs Equilibrium and Market Efficiency
Author(s) -
EASLEY DAVID,
JARROW ROBERT A.
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb02509.x
Subject(s) - interpretation (philosophy) , market efficiency , rational expectations , economics , relation (database) , efficient market hypothesis , microeconomics , positive economics , financial economics , econometrics , computer science , paleontology , horse , database , stock market , biology , programming language
This paper presents an analysis of the concept of consensus beliefs and its relation to market efficiency. We show that unless traders have rational expectations, the two published interpretations of consensus beliefs are not useful for considerations of market efficiency. One interpretation (see Verrecchia [6]) has no implication for market efficiency. Under the second interpretation (see Verrecchia [7], [8]) consensus beliefs equilibria are efficient, but they typically do not exist unless traders have rational expectations.