Some tests also account for transactions costs and execution feasibility.
In every case, a test of market efficiency is a joint test of market efficiency and the efficacy of the model used for expected returns . When there is evidence of excess returns in a test of market efficiency, it can indicate that markets are inefficient or that the model used to compute expected returns is wrong or both . There are a number of different ways of testing for market efficiency, and the approach used will depend in great part on the investment scheme being tested. An event study is designed to examine market reactions to, and excess returns around specific information events . Once the event dates are known, returns are collected around these dates for each of the firms in the sample.